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Rabobank: The Problem Is No Central Bank Can Bail Out The Physical Economy From Shortages

Rabobank: The Problem Is No Central Bank Can Bail Out The Physical Economy From Shortages

By Michael Every of Rabobank

Back in the days before…

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This article was originally published by Zero Hedge

Rabobank: The Problem Is No Central Bank Can Bail Out The Physical Economy From Shortages

By Michael Every of Rabobank

Back in the days before infinite liquidity and markets being in love with the idea of being big just for the sake of it, there used to be discussion about the difference between extensive and intensive growth. Put simply, extensive growth is achieved by adding more inputs to get more output; intensive growth is achieved by getting more output from existing inputs – what we call ‘productivity’. Back in the old days, we used to have that too.

Extensive vs. intensive comes to mind on the back of yet another stronger-than-expected US inflation print (0.4% m/m, 5.4% y/y; 0.2% m/m core, 4.0% y/y). This was followed by the White House announcing early results of its supply chain task force. The longshoreman and the short is: the Port of LA is expanding to 24/7 operation; the union has announced they are willing to work extra shifts; and large US companies are announcing they will use expanded hours to move more cargo off the docks, so ships can come to shore faster. So, crisis over?

Not at all, in the view of supply-chain experts. Well before this announcement they had pointed out –as did we, in ‘In Deep Ship’— that simply getting containers out of the terminal at LA achieves very little if you don’t the solve chassis crisis; if the containers sit there waiting for trucks; or for truckers; or for rail. All you do is move the logjam from sea to shore – and that can potentially make matters worse. The Transportation Secretary running this task force is a vocal opponent of the ‘so build a bigger road’ mentality that ends up with bigger roads and the same traffic logjam. This is the same policy idea without even spending on the cement and asphalt.

Some are also asking why the White House bafflingly still hasn’t appointed a US Maritime Administrator yet. Others are asking how trying to facilitate more imports into the US, rather than banging the drum for localization and ‘just in case’, is compatible with Build Back Better and resiliency. But there is bipartisanship in failing to understand what is going wrong, and how to solve it. Florida Governor De Santis is offering his state’s ports as an alternative to LA when it isn’t practical; and a Californian Republican just introduced the SHIP Act to Congress to “ban cargo ships from idling or anchoring in the coastal waters of Southern California for the next 180 days”, so forcing dozens of vessels to hang around in the ocean for months rather than safely offshore.

In short, we are seeing a lot of moving faster, and very little moving smarter. The Grinch will easily steal Xmas, and far more, at this rate.   

Sailing on regardless, the FOMC minutes from the September 21-22 meeting said that an illustrative path of QE tapering designed to be simple to communicate and entailing a gradual, fixed reduction in net asset purchases of $10bn Treasuries and $5bn agency MBS, ending around the middle of next year, is seen as providing a straightforward and appropriate template that policymakers might follow. Of course, the Fed also noted that it could adjust the pace of tapering if economic developments were to differ substantially from what they expected – like both inflation and employment has so far, to no effect. In short, the Fed announced tapering in just a few weeks (November 3), and then actually start to taper from either mid-November or mid-December. Isn’t that fitting in a way? After all, there will almost certainly be far less *stuff* circulating in the US economy, so shouldn’t we match that with far less liquidity? Before you say yes, if you believe the Fed actually think like that, I have a port in New Mexico to sell you. They clearly have stock portfolios to worry about instead.

Meanwhile, it wouldn’t be a day ending in a y without a new global supply-chain disruption. This time China is to stop exporting refined fuel. This is just as the rest of Asia is set to consume more, as it begins to open up again. As Bloomberg puts it, quoting Oilchem: “State-owned refiners are earning more from local sales”. Which is where arguments about localization and resiliency begin to re-emerge, for some.

Staying with energy, Chinese coal prices are hitting new highs again, with this now set to be passed on to industry; by contrast, the EU are talking about tax cuts to help industry and consumers cope with rising electricity prices! Isn’t this strategy, albeit via wage increases, what we tried and failed with in the 1970s? It’s not that this is necessarily the wrong thing to do to avoid recession risks and social unrest – but it will only push prices even higher, and strain supply chains even more. Indeed, while all the headlines about the IEA’s annual energy report yesterday are naturally that we need to more than redouble our efforts to shift towards renewables, if you read the nastier details, there is also a need for massive investment in fossil fuels through to 2030. If that doesn’t arrive, high energy prices are here to stay, seems to be the message: like Xmas gifts, is it on the way though? And to some places, or everywhere?

After slowing loan growth yesterday in China, and another far-higher-than-expected trade surplus, today saw Chinese inflation data. CPI came in at 0.7% y/y vs. 0.8% last month and the same expected for this. More importantly, PPI came in at 10.7% y/y vs. 9.5% last month and 10.5% expected. Recall that coal prices alone will push this series much, much higher ahead in theory.

Staying with China, Bloomberg says At this point, it’s no longer about salvaging the troubled China Evergrande Group or its billionaire chairman Hui Yan Ka from the debt crisis. It’s jobs, growth and, ultimately, social stability that are at stake. In other words, a bailout of the indebted developer may not be enough to underpin one of the world’s second-largest economy as payment defaults become contagious, a sales slump spreads to the whole sector, and more players see their ratings cut.” The argument is naturally parroted by Wall Street: sure, *pretend* to deal with asset bubbles, but you cannot really deal with them “because markets!” Yet Bloomberg also notes loosening policy slightly won’t change consumer psychology, and Beijing has made clear house prices are no longer going to be allowed to keep going up – so why buy a 2nd, 3rd, 4th home, etc., which accounted for 85% of recent home sales?

So, we are looking at both deflation and inflation in China, vs. just inflation everywhere else. Moreover, we are back to extensive vs. intensive growth, which Wall Street no longer understands; just as it now fails to grasp Schumpeter; just as it utterly fails to read Marx. Don’t let that all stop the Street, or Chinese markets, perpetually pricing in bailouts and hockey sticks and “transitory” and Xmas every day, however. It’s all a generation of traders have known both East and West, so who can blame them? The problem is no central bank can bail out the physical economy from shortages.

To wrap up, Aussie jobs data showed a -138K print, yet where unemployment went down to 4.6%, and only part-time jobs were apparently lost, not full-time. Extensive or intensive takes on such partial data are not really worth too much of anyone’s time. They certainly won’t be moving the RBA from not moving.

Tyler Durden
Thu, 10/14/2021 – 10:10






Author: Tyler Durden

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Economics

The Gaslighting Of America

The Gaslighting Of America

Authored by Bob Weir via AmericanThinker.com,

I remember a comedy skit several years ago in which a woman comes…

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The Gaslighting Of America

Authored by Bob Weir via AmericanThinker.com,

I remember a comedy skit several years ago in which a woman comes home unexpectedly and finds her husband in bed with another woman.  Shocked, she demands to know who the woman is and why her husband is doing this.  The couple get out of bed and start getting dressed as the man says to his wife, “Honey, what are you talking about?” The wife, perplexed at the question, says, “I’m talking about that woman!”  Meanwhile, the other woman, now fully dressed, heads for the door.  The husband says, “What woman?  Honey, are you feeling okay?  There’s no woman here.”  Feeling dazed and confused, the wife begins to question her own sanity.

That’s a pretty good example of what the Biden administration is pulling on the psyche of the American people.  

What they’re doing is not merely “spin,” which has become SOP whenever a political party does a clever sales job on the public in order to keep certain facts from them.  No, this is much more than shrewd marketing; this is blatantly lying in the public’s face and telling them they’re crazy if they believe their own eyes.  

When we look at videos showing thousands of migrants coming across our southern border with impunity, while Biden and his cohorts tell us they have the situation under control, we’re being gaslighted.

When thousands of Americans and Afghan allies are abandoned to be tortured and killed by Taliban terrorists, while Biden’s press secretary, Jen Psaki, tells us the war ended successfully, we’re being told not to believe what we’re seeing.  

President Trump made our country energy independent, only to have his success overturned by Biden on day one of Biden’s presidency.  That forced our country to once again be dependent on foreign oil.  Biden said his action would help protect the environment.  We scratch our heads and wonder how it makes sense to ship millions of barrels of oil on cargo ships from thousands of miles away, only to be used the same way it was used when it was processed here.  

Does foreign oil have less environmental effect than American oil?

When Biden proposes a $3.5-billion “infrastructure bill” that is heavily weighted toward social engineering and radical “Green New Deal” initiatives, we’re told that everything is infrastructure.  

We’re also told that the massive spending bill will cost “zero dollars” because the new taxes will be assessed only on the wealthy.  

Then, to add more consternation to a public getting groggy trying to keep up with twelve-digit numbers, Biden and his accomplices want another $80 billion for the IRS so its agents can check into every bank account that has transfers of $600 or more.  As if the IRS weren’t already a liberty-crushing organization, Biden wants to provide it with more ammo to use against those who oppose him.  Nevertheless, we’re told it’s going after only tax cheats.  Why would these people need $80 billion more to do what they’ve always done?  Don’t ask, lest you get audited for questions they don’t want asked.

When the supply chain of cargo ships, carrying about a half-million shipping containers filled with goods from all around the globe, are stalled in the waters outside major American port cities, we’re told by White House chief of staff Ron Klain that it’s just “high-class problems.”  

In other words, only the wealthy are waiting for the goods to arrive at stores.  Moreover, Jen Psaki mocks it as the “tragedy of the treadmill that’s delayed” — another elitist poking fun at the reasonable expectations coming from the working class.

The list of gaslighting incidents is growing longer than Pinocchio’s nose. 

Each time we are faced with another destructive lie, our attention is diverted to the latest Trump investigation or the probe of one of his supporters.  Keeping the January 6 imbroglio alive is one of those diversions.  The radical left has come to power by a sinister display of distractions from reality.  A major part of that distraction is using accusations of racism to muzzle opposition.  Most people will cower in fear of such labeling, even when they know in their hearts it’s not true.  That’s precisely what makes the accusations so useful to those who seek power through intimidation and distortion of reality.  

President Trump called out situations for what they are, without the odious and murky filtration of political correctness.  That’s why the entrenched powers of Deep State corruption despised him.  

Now we’re stuck with a president who says “what inflation?” as we pay higher prices than ever at the gas pump and the supermarket.  I seriously doubt that shoppers are questioning that reality.

Tyler Durden
Mon, 10/25/2021 – 21:10

Author: Tyler Durden

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Economics

The U.S. Budget Deficit

#CKStrong The U.S. Treasury findly released their monthly statement on Friday, which closed the books on the government’s 2021 fiscal year (October to…

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#CKStrong

The U.S. Treasury findly released their monthly statement on Friday, which closed the books on the government’s 2021 fiscal year (October to September).  The deficit came in at $2.8 trillion (12.0 percent of GDP, based on our Q3 GDP estimate) , a bit lower than FY 2020’s $3.1 trillion (14.8 percent of GDP).  Those are some massive deficits, folks. 

 

U.S. Deficit Larger Than 95 Percent Of Global Economies

In fact, the FY 2021 deficit was larger than Italy and Canada’s economy, bigger than 185 of the 192 country economies in the lastest IMF database.  Take a look at the peak 12-month deficit of $4.1 trillion in March.  The March deficit would have made the G5. 

This image has an empty alt attribute; its file name is usg_deficit_3.png

Financing The COVID Deficit

How can the U.S. Treasury finance $5 trillion in borrowing over the past 18-months without spiking global interest rates, crowding out investment and other asset markets, and tanking asset prices?   They can’t.  

The table below breaks down the financing in several different measures.  Check it out.

The bottom line is that 23 percent of the COVID deficit borrowing has been financed by an increase in Treasury bill issuance, easy given the mass excess liquidty on the short-end where the Fed is soaking up over a trillion with overnight reverse repos in order to keep short-term rates postives.  Most of that liquidity, by the way, was created from QE.   

Of the remaining $4.1 trillion of non T-Bill debt issuance, 75 percent was taken down by the Fed, albeit indirectly.   

No Judgement

There you have have it, folks, T-Bills and the Fed have financed the bulk of the COVID deficit and debt buildup.   No judgment, but policymakers are now going to have engineer a soft landing in the economy and asset markets as we approach a fiscal cliff to normalize the budget deficit and tighten up monetary policy. 

We are not throwing stones as they saved the world from a global economic castasophe.

We do criticize their continued irresponsible policies as inflation rages and stagflation sets in.  It’s not wise, in our experience, to try and monetize supply shocks.  We learned that hard and painful lesson by doing so with the OPEC oil shocks.  

Narrow window for a soft landing.  Stay tuned. 

Email us or comment if you have questions.  








Author: macromon

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An Anti-Inflation Trio From Three Years Ago

Do the similarities outweigh the differences? We better hope not. There is a lot about 2021 that is shaping up in the same way as 2018 had (with a splash…

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Do the similarities outweigh the differences? We better hope not. There is a lot about 2021 that is shaping up in the same way as 2018 had (with a splash of 2013 thrown in for disgust). Guaranteed inflation, interest rates have nowhere to go but up, and a certified rocking recovery restoring worldwide potential. So said all in the media, opinions written for everyone in it by none other than central bank models.

It was going to be awesome.

Straight away, however, right from the very start of 2018 there were an increasing number (and intensity) of warning signs. Flat curves were a big one – which then later inverted. In global economic data, crucial contradictions were purveyed by Japan and Germany.

In other words, taking cues from those three – Japanese and German conditions augmented by consistent contortions in the US Treasury yield curve – before we even got to the end of 2018, while the mainstream narrative prevailed unopposed with Jay Powell still hiking rates, we said very differently. Here’s early November 2018, with already negative GDP in both those places:

This year is proving to be a trainwreck in too many important places. It was supposed to be the arrival of worldwide recovery. Worse, too many arrows are still pointing down for 2019. But you wouldn’t know it from the Bank of Japan, ECB, Federal Reserve, etc. Not until they are forced into some honest assessments for once.

Heads in the sands (or another orifice, if you prefer), “tightening” became the preferred if only option across the globe. The Fed, the ECB, others around the world rushed to get ahead of the (imagined) inflationary pressures “everyone” said were on the cusp.

Just a few months further on, March 2019, everything had already changed though it would take many more months for the stunned mainstream to even begin appreciating all the roughness.

As is standard practice, when weak data began showing up last year it was attributed to anything, everything else. Europe was downright booming, they said, so there was no possible way for a macro negative scenario…Europe isn’t the only place where manufacturing declines are showing up. Just as Germany is a bellwether for global trade and therefore global economy, Japan is in very much the same situation. Export-oriented, if Japan Inc. isn’t making new goods that’s because the rest of the world isn’t demanding them.

Germany. Japan. Yield curve. Twenty-eighteen.

Twenty twenty-one?

Germany:

Japan:


Yield curve:

Germany and Japan the economic bellwethers for the whole global economy (the importance of trade at the margins) along with the Treasury curve reacting to, and forecasting ahead from, the real global economy’s interior and insides. Economists are, by contrast, so removed from the realities of real-time facts so as to be modern day astrologers making claims based on little more than specious privileges.

Germany or Japan struggling isn’t really about Japan or Germany; nor the UST curve specific to US and Treasury. With a massive overflow of goods heading toward especially the US, however warehoused on the way, as I wrote earlier today, what might this trio bode with regard to the direction for future demand?

Many companies have claimed they are absolutely ready for “too many goods”, believing both their newfound penchant for individual supply chains as well as logistical consulting to manage more than ever. This so long as demand doesn’t “unexpectedly” fall off, even a little, which then might trigger the downside of the inventory cycle.

Three years ago, these three indications taken together were keen warning signs how demand was about to and would fall off “unexpectedly” (if it hadn’t already). And these ended up being highly accurate measures of the global economic direction that were completely, utterly contrary to the surefire, guaranteed inflation/recovery/BOND ROUT!!! no one ever challenged.

Is this time different? Hope so, but history keeps repeating because no one ever explains what happened last time. And the time before. And the time before. And…






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