All the canaries in the minefield are dead – the looming economic correction

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The spectre at the feast during the negotiations for the new Government last year was the deep seated belief that a serious economic collapse was coming.

It shaped the way Winston Peters approached the negotiations ands it’s the reason the agreement between him and Jacinda will never be released.

Almost everywhere now, alarm bells are ringing that the correction is coming.

Markets have gone beyond euphoric and have now entered their drugged up kool aid cult phase.

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The stratospheric asset markets pumped up by quantitate easing to try and fight off the 2007-2008 global financial recession are all starting to shake and shudder under the enormous weight of debt created wealth the current economic system must now try and carry.

In the normal rhythm of Capitalism we would have had our boom bust cycle, but because the last bust would have been so destructive, the system allowed the same reckless corporate greed to overtake providence and the elites are once again gambling with everyones livelihoods.

The reverberations will swamp us, and may already be impacting our real estate market and the sudden ratcheting up of a trade war between China and America could become a reality within weeks…

The trade tensions come at a delicate juncture just as the two great economies start to diverge. A blast of fiscal stimulus at the top of the cycle is pushing the US towards an overheating boom, while China is clearly slowing as fiscal spending cools and credit curbs bite deeper.

This combination is toxic for trade equilibrium. China’s trade surplus with the US rose 10 per cent to a record US$276 billion ($380b) last year even before this development. It is almost certain to jump further this year as US consumers suck in imports.

China launched a massive fiscal and credit expansion in 2016 and 2017 designed to prime pump the economy before the coronation of Xi Jinping at the Communist Party Conference last autumn. What is unclear is whether it will slow gently this year, or whether a deeper downturn is coming.

Imports of crude oil, copper, and iron ore fell by 12 per cent, 7 per cent, and 11 per cent in December, beyond what can be explained by season effects. The war on pollution is leading to closures of heavy industrial plants.

China’s M2 money supply growth fell to a modern-era low of 8.2 per cent in December. New credit halved to US$90b as the authorities cracked down on shadow banking and forced lenders to deleverage, squeezing the private sector.

Capital Economics says its proxy gauge of economic output – unlike the “smoothed” official figures – has dropped to a growth rate of around 5 per cent.

…people are going to want a State that will be prepared to step up to the challenge and lead rather than leave it to the free market.

A hard rain’s a-gonna fall.

7 COMMENTS

  1. Yes all true Martyn,

    I see a rocky road ahead but labour will ‘weather the storm’ if they carry through with this pledge to s they made post election time.

    This was what I got in the email last year as parliament resumed;

    Dear ———–

    With the opening of Parliament today, the Government began our legislative agenda. This is where the real change begins.

    I want the way this Government runs to be different.

    It will be a Government of transformation.

    We’ll put people right at the heart of our agenda.

    Every decision will be assessed on its impact on people and at every turn.

    Our Government will be guided by kindness and compassion.

    As well as our values, we laid out our policy plans for the term today. They’re firmly focussed on making New Zealanders’ lives even better. We will fix the housing crisis, build up our education system, ensure everyone can get the healthcare they need, take action on climate change, develop our regions and raise everyone’s incomes.
    We have the plan and the policies to do all this.

  2. Martyn, bring up the idea of a looming correction coming on the stuff website and you get told you are a raving lunatic. People in this country seem to either have rose tinted spectacles on or have their heads in the sand. Because its easy to see what is coming on the horizon. It was ten years since the last correction. I think this will be the year of the big one…

  3. ‘China Downgrades US Credit Rating From A- To BBB+, Warns US Insolvency Would “Detonate Next Crisis”

    In its latest reminder that China is a (for now) happy holder of some $1.2 trillion in US Treasurys, Chinese credit rating agency Dagong downgraded US sovereign ratings from A- to BBB+ overnight, citing “deficiencies in US political ecology” and tax cuts that “directly reduce the federal government’s sources of debt repayment” weakening the base of the government’s debt repayment.

    Oh, and just to make sure the message is heard loud and clear, the ratings, which are now level with those of Peru, Colombia and Turkmenistan on the Beijing-based agency’s scale of creditworthiness, have also been put on a negative outlook.

    In a statement on Tuesday, Dagong warned that the United States’ increasing reliance on debt to drive development would erode its solvency’

    https://www.zerohedge.com/news/2018-01-16/china-downgrades-us-credit-rating-bbb-warns-us-insolvency-would-detonate-next

  4. I feel like you’ve undermined your claim here:

    “In the normal rhythm of Capitalism we would have had our boom bust cycle, but because the last bust would have been so destructive, the system allowed the same reckless corporate greed to overtake providence and the elites are once again gambling with everyones livelihoods.”

    So, the last bust was stopped by not the ‘system’ but the state. The state prevented the collapse of those banks, which is what allowed the reckless corporate greed to be rewarded with continuation instead of failure. In other words, what the state should have done is let the market do what it does and make those companies fail, and then compensate the public.

    So where you say this:

    “…people are going to want a State that will be prepared to step up to the challenge and lead rather than leave it to the free market.”

    They didn’t leave it to the free market; they bailed out the businesses and cut the people loose. The distinction is important. If we don’t get this right and call it for what it was, we’re not exactly capable of recommending a corrected course of action. The US response to the GFC was not a free market response, it was a plutocratic one. What we need is actually insist that corporate greed of this kind does get a free market response, while the state looks after the people who are affected. We don’t learn from history if we give everything the wrong name.

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