Libertarian Commentary #16-11C By Nathan Barton
More and more red flags are being hosted, by a wide spectrum of experts (real or self-annointed), about the American and World economy. Some are getting really, really hyper. But, are they real?
Oil is always pushed as an indicator. Are oil prices heading for a big, big fall? According to Forbes, as reposted by Contra Corner, oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price. Prices should fall to around $30 when the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s. He (and many others) claim that a production freeze will not reduce the supply surplus. An OPEC-plus-Russia production cut would be a great step toward re-establishing oil-market balance, but Stockman believes that will happen later in 2016 but is not on the table today.
Mama’s Note: Why is this large supply and low price a bad thing? I think it is wonderful, and could get some of the idle US and world manufacturing going again. Transportation, shipping and travel would have a big boost as well, reducing the cost of living for all of us. Production would slow, naturally, and the price would go up if the supply got much below demand, but all of that is the market, balancing and correcting itself. Of course, all of the governments in the world where oil is produced will have their hissy fits and attempt to control the market, but I suspect they won’t be able to stop this correction, or control the next boom. Unfortunately, if the dollar crashes, all bets are off.
This may be the last straw for the over-extended oil producers and service industry here in the States: the increase in price to nearly $40 in the last few weeks had given them some breathing room, but a drop will push them into a really bad cash crunch, and may drive a LOT into bankruptcy, with wholesale layoffs. This would immediately hit North Dakota, Wyoming, Texas, Oklahoma, and New Mexico hard, and other states like Kansas and Utah as well. This of course would quickly spread to other states both in the Fifty and in Mexico, and to the Provinces.
So there may be something to be concerned with as oil prices again take a hit as Stockman and many others are predicting,
World shipping is also continuing to drop. Although several sources have attempted to pooh-pooh the claim that shipping has ground to a halt and there are few if any general-cargo ships on the world’s oceans, the commonly accepted indexes of shipping continue to drop lower and lower.
Again, Contra Corner also reposted a Bloomberg article warning that things continue to look bad on the world economy. A new Chinese shipping index that tracks freight movements among the countries on the route of one of President Xi Jinping’s key trade initiatives has fallen to the lowest level since it was established. The Maritime Silk Road Freight Index was launched on a trial basis by the Shanghai Shipping Exchange last July. The index takes January 2015 as its base point, and at that time it had a value of 100. The latest update, released on February 29, shows that the index has declined to 65.11 after falling 10.3 percent over the previous month alone. That is, of course, 35% in a year or so, and David Stockman blames (with some justification) it on what he calls the “Red Ponzi,” the vast overbuilding and infrastructure effort pushed by Peking which is now nearing the bursting point.
A lot of us pay attention to the Baltic Dry Index, which according to Hellenic Shipping News has again climbed this week. Today, Monday, March 14 2016, the Baltic Dry Index climbed by 5 points, reaching 393 points. Baltic Dry Index is compiled by the London-based Baltic Exchange and covers prices for transported cargo such as coal, grain and iron ore. The index is based on a daily survey of agents all over the world. Baltic Dry hit a temporary peak on May 20, 2008, when the index was 11,793. The lowest level ever reached was on Wednesdayy the 10th of February 2016, when the index dropped to 290 points. Good news, to counter oil, Chinese shipping, and other bad news? Maybe, but not that much. Of course, ALL peaks are temporary and HSN is trying (like many including Forbes and Bloomburg) to get people to stop worrying about a collapse in shipping, pointing out that it is surplus supply even more than demand that is driving shipping prices down (just like oil and gas). But it sounds very much like whistling in the dark. If the Dow had dropped to 25% of its 2008 value, we might be forgiven for grasping at the fact that it increased by more than 25% in just over a month as a good sign. (Especially if we don’t know how to do basic math.) But it is STILL way way down, and even an increase of 100 points is NOT a good indicator, when it is so very low. This too seems to be an indication that the economy, not just of the world but of North America and Western Europe, is sagging badly.
Europe is not doing so well, either. The LA Times reported on what many expected, that the European Central Bank was launching a sweeping “stimulus” plan, and cut main interest rates still deeper into the warped and twisted world of negative rates. “The European Central Bank cut all its main interest rates, expanded its bond-buying stimulus program and offered new cheap long-term loans to banks, making an unexpectedly aggressive move to boost inflation and economic growth in the 19 countries that share the euro. … The negative rate on deposits — in essence, a tax on bank’s excess funds — is an unusual step aimed at pushing banks to lend rather than leave money at the central bank.” While this may also be a war on currency and coin (tokens), trying to drive people into a total credit-style economy and use of plastic and electronic “money” only, it is also a sign of dangerous desperation. The economy of at least half of these 19 countries are in really bad shape and those who are at least keeping their heads above water are tired of being sucked dry. This is a reminder that economic decline drives political events: including collapse.
Conclusion? There are some strong signs that we are entering another phase of that depression that I call the Crash of 2009: that the economy of the Fifty States and of the planet are both getting hit hard now, and with indications that further hard hits are coming very soon.
And once again, we see government lying about it, and we see government (taxes and regulations and general sand in the gears) causing it, or at least making it worse.