Northern Country

How globalization changes capitalism, the economy and politics

Posts Tagged ‘GDP

Krugman – one unflinching Keynesian economist

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Today employment in the US is lower than it was ten years ago, the stock market is lower than it was ten years ago. Keynesian economics has created a two tier society, with the investor-ownership class on one side and the working poor on the other.

Keynesianism has brought an end to the democratization of capital markets and helped to foster a politically inept society with less opportunities for fewer people. Before the advent of Keynesianism bubble economics occurred rarely and if it did it was linked to natural product cycles. Today bubble economics are part of the intricate mechanism of capital flows almost unhinged from natural product cycles and rather dependent on artificial and corrupt political initiatives.

US economist and Nobel laureate professor Krugman is a very outspoken representative of governement-spending-saved-the-world defenders of Keynesianism. In times he is so convinced by his ideas that he does not shy away from indulging policy makers with his nuggets of knowledge.

A good example for how far Mr. Krugman was willing to go, was his fierce attack of Germany finance minister Steinbrueck in December of last year. Steinbrueck warning of crass Keynesianism, in the midst of the largest government economic rescue effort in history, caught Mr. Krugman’s anger and earned Germany a collective boneheadedness from the professor.

Of course in the meantime more and more green-shoots are becoming evident and most national economies have stopped their abysmal plunge, with some even showing humble signs of growth in the second quarter. Mr. Krugman and other Keynesian economists find themselves now in a somewhat awkward position having to defend themselves over their radical support for stimulus.

Professor Krugman ventures deep into wonkish territory in his defense for deficit spending and why we should not fear it in the context of higher interest rates. Interest rates are of course important because as a discount to future earnings they are the most important factor in determining our wealth. Deficits and interest rates are the topic of one of his most wonkish blog posts in the New York Times to date.

The core of professor Krugman’s post is a positive correlation between GDP and interest rates and a negative correlation between interest rates and deficits. The core fallacy of Keynesians is what follows, lower GDP merits higher deficit spending and nobody needs to fear high interest rates because they are inversely correlated and therefore lower with higher deficits. This is despite the fact that most would acknowledge that deficit spending is inflationary.

deficits-interestchart shows neg. correlation btw. T-Note interest rates and government deficit spending

Most economic formulas (S-I = G-T is the one Professor Krugman is using), to the contrary what economist want you to believe, are not universally true laws of nature like a physical law or even most scientific laws. Economists of course believe that the only true science is economics.

In mathematics a formula about events at some future time-horizon always acknowledges uncertainty of a predicted outcome inherent in its logical argument. Economists though using mathematics merely extrapolate a present situation into some future time-horizon rather than acknowledging uncertainty. In other words they think what is true now has to be true also in the future. It seems to me that Keynesians are the world’s champion in extrapolating the facts ad infinitum.

The problem is not i.f., deficit spending. The problem is rather not knowing when its enough and when to withdraw, not knowing when to hold ’em and when to fold ’em is the real problem. It is this uncertainty that’s inherent in their economic formulas and yet they do not account for it. Keynesians live for the here and now, they completely discount the future. The crisis of 2007,08,09 should be proof enough that it can’t be done.

Economists are wrong about the economy nine out of ten times. Some Keynesians think they are right because they have not been wrong so far. I got news for ya, not being caught with a lie is not the same thing as telling the truth.

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Update on deepest global recession in over 60 years

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Yesterday US president Obama for the first time offered a passionate defense of Ben Bernanke, chairman of the Federal Reserve. Bernanke did a fine job and performed well during the crisis. This support is supposed to strengthen Obama’s position on reform and oversight of the financial-services industry. He plans to vest almost unlimited power with Bernanke and the Federal Reserve and this has drawn some criticism. Many blame the Fed for the current financial and economic crisis and despite drastic actions by the Fed and other central banks around the world, global growth has continued to contract. Here is an update on the most recent forecast for global growth and despite some improvement it ain’t looking good.

Weltbank Kahlschlag bei Euro-Zone-Prognose:

World Bank lowers Euro-zone GDP growth forecast dramatically from minus 2.7 to minus 4.5 percent GDP growth for 2009. US GDP will also contract by 3 percent, worse than the previous 2.4, and Japan by 6.8 percent versus 4.3 percent contraction of GDP in 2009. According to WB the recovery in 2010 will also be more tepid than previously thought. A modest better growth uptick is expected for China, Russia and India.

Weltwirtschaft erholt sich laut IWF schneller:

According to the International Monetary Fund (IMF) the recovery from the global recession will be stronger than previously thought but deleveraging of private and public households, slow credit growth, unemployment and shrinking private wealth will slow down recovery. For 2009 global growth will contract by 1.3 percent according to the IMF.

World Bank cuts 2009 global growth forecast:

Global trade is expected to plunge by 9.7 percent this year, while total gross domestic product for high-income countries contracts by 4.2 percent, the bank said. Economic growth in developing countries should slow to 1.2 percent — but excluding relatively strong China and India, developing economies will contract by 1.6 percent. The WB sees a projected recovery beginning at the end of 2009 but expects it to be much less vigorous than normal.

Global recession nearing bottom, OECD says:

The deepest global recession in over 60 years is close to bottoming out, but recovery will be weak unless governments do more to remove uncertainty over banks’ balance sheets, the Organization for Economic Cooperation and Development (OECD) said Wednesday. The economy of OECD countries will shrink by 4.1 percent in 2009, slightly better than a 4.3 percent from the previous forecast. But the recovery "is likely to be both weak and fragile for some time” . The OECD forecasts return to an average of 0.7 percent growth across its member countries in 2010. In the US recovery "could be uncharacteristically weak and insufficient" .

 WachstumsprognosenJun2009

Written by Alfred

24. June 2009 at 10:11 pm

China – Same old same old

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We are back to the old China story. It seems almost as if China is the only hope for world economy to recover, but that cannot be true either. The country is a net exporter and a still pretty low income structure cannot contribute much to a recovery on a global perspective. That job is still firmly in the hands of the US, and its not looking too good.

Nevertheless growth in China is impressive and has remained far ahead of the US and Europe where output is in deep contraction. Louis Kuijs, Senior Economist for World Bank, thinks it is too early to say if China’s economy has really bottomed out but growth will remain respectable. According to Michale Buchanan, Managing Director and Chief Asia Pacific Economist, Goldman Sachs, China’s economy will recover faster than other countries because of a limited impact of the financial crisis.

China’s first-quarter GDP grew 6.1 percent over the previous year, which may be a strong performance in the global context but is the lowest rate for China in many years. China’s urban fixed-asset investment in the first five months rose 32.9 percent year on year. However, the robust growth was mainly a result of investment on government-sponsored infrastructure projects.

The sequential growth rate quarter over quarter is very strong and in the moment it looks like a V-shaped recovery is on its way. In the end it will be up to its western trading partners how fast the global economy will be able to recover. Even in China exports are down almost 30 percent compared to last year, shrinking for the sixth consecutive time in May. 

Written by Alfred

15. June 2009 at 9:44 am

Aufschwung an den Börsen: real?

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David Rosenberg, Chefökonom der mittlerweile von Bank of America übernommenen Investmentbank Merril Lynch, verlässt die Firma, nicht aber ohne vorher noch eine ziemlich düstere Bewertung der Wirtschaftslage abzugeben. Ganz besonders geht er der Frage nach ob der derzeitige Höhenflug bei den Börsen mehr ist als nur ein vorübergehendes Stimmungshoch. Sein Schluss: It’s Just a sucker’s rally! Das ist umso ernüchternder weil Rosenberg ein echter Kenner der Wirtschaft und der Kapitalmärkte ist, der in der Vergangenheit in seinen Vorhersagen stets richtungsweisend und präzise war.

Der Ökonom glaubt, dass die Aufwärtsbewegung der letzten neun Wochen an den Börsen von erstaunlichen fast 40 Prozent mit Freitag vergangener Woche ihren Höhepunkt erreicht hat. Er sieht heute die Risiken viel größer als zum Vergleich zu den fast gleichen Marktpreisen Anfang Jänner dieses Jahres.

Risk is much higher now than it was 18 weeks ago.  The nine-week S&P 500 surge from 666 at the March lows to 920 as of yesterday has all but retraced the prior nine-week decline from the 2009 peak of 945 on January 6 to the lows on March 9. We believe it is appropriate to put the last nine weeks in the perspective of the previous nine weeks.

Rosenberg gesteht zwar ein dass sich der wirtschaftliche Abschwung seit der post-Lehman Kreditklemme verlangsamt hat, glaubt aber trotzdem nicht an die Nachhaltigkeit dieses Aufschwungs. Arbeitslosigkeit, Produktion, Verdienst und Nachfrage an Konsumgütern sind nachwievor in einer fundamentalen Abwärtsbewegung. Obwohl sich das GDP etwas erholt werden die Märkte doch dieser begrenzten nach-Rezessionsphase erliegen. Ganz besonders gehört Rosenberg zu denen die in dieser Krise eine fundamentale Veränderung der amerikanischen Psyche sehen, wobei bei den Konsumenten eine Veränderung hin zur vermehrten Sparbereitschaft entstehen wird.

We strongly believe it is premature to totally rule out the end of the vicious cycle of real estate deflation – residential and now commercial – that we have been experiencing since 2007.  Balance sheet compression in the household sector will continue to pressure the personal savings rate higher at the expense of discretionary consumer spending. This is a secular development, meaning that we expect it will last several more years.

Diese sehr interessante Graphik zeigt die persönliche Sparquote der Amerikaner seit 1929. Auffallend ist die starke Abwärtsbewegung die Mitte der 80er Jahre begonnen hat und ziemlich genau mit dem Zeitverlauf der Kreditblase in Amerika übereinstimmt. Falls Rosenberg Recht hat und dieser Trend endgültig gebrochen ist wird sich damit die Weltwirtschaft auch entscheidend verändern.

PersonalsavingsrateAmerica

courtesy CR, http://www.calculatedriskblog.com/

Written by Alfred

12. May 2009 at 11:15 am