Shipping Decline

BALTIMORE – “It’s over!” Raúl Ilargi Meijer, a regular contributor to David Stockman’s Contra Corner newsletter, explains that the “entire model our societies have been based on for at least as long as we ourselves have lived is over!

 

1-defaults-by-regionGlobal corporate defaults are at the highest level since the peak of the financial crisis – click to enlarge.

 

Meijer again:

 

“That’s why there’s Trump. There is no growth. There hasn’t been any real growth for years. All there is left are empty, hollow, sunshiny S&P 500 stock market numbers propped up with ultra-cheap debt and buybacks, and employment figures that hide untold millions hiding from the labor force. And most of all, there’s debt, public as well as private, that has served to keep an illusion of growth alive and now increasingly no longer can.

These false growth numbers have one purpose only: for the public to keep the incumbent powers that be in their plush seats. But they could always ever only pull the curtain of [The Wizard of] Oz over people’s eyes for so long, and it’s no longer so long. That’s what the ascent of Trump means, and Brexit, Le Pen, and all the others. It’s over. What has driven us for all our lives has lost both its direction and its energy.”

 

None of this will come as a surprise for Diary regulars. We know nothing makes people poorer faster than too much “money.”

The feds provided the economy with an almost unlimited quantity of credit-based funny money. The money was phony. But it bought real resources. And then, with no need to think carefully about how the capital was put to use, the resources were wasted.

Corporate defaults are running at their fastest pace since 2009. Nine out of 10 households have lost income. And tax receipts for the last quarter fell from the same quarter in 2015.

 

2-baltic-dryIf one leaves aside the wild spike and crash in the Baltic Dry Index from 2006 to 2008, which went hand in hand with a giant bubble in the Chinese stock market, one still sees a steady downtrend… – click to enlarge.

 

Adjusted for inflation, real growth in the U.S. economy – as measured by actual tax collections rather than the feds’ squirrelly statistics – is falling. The world economy, too, is slowing. Lambert Strether of the blog Corrente Wire explains:

 

“I started following shipping – partly because it’s fun but more because shipping is about stuff, and tracking stuff seemed like a far more attractive way of getting a handle on “the economy” than economics statistics, let alone whatever books the Wall Streeters were talking on any given day.

So, what I noticed was decline, and not downward blips followed by rebounds, but decline for months and then a year. Decline in rail, even when you back out coal and grain, and decline in demand for freight cars. Decline in trucking, and decline in the demand for trucks. Air freight wobbly. No Christmas bounce at the Pacific ports.

And now we have the Hanjin [shipping company] debacle – all that capital tied up in stranded ships, though granted only $12 billion or so – and the universal admission that somehow “we” invested w-a-a-a-a-a-y too much money in big ships and boats, implying (I suppose) that we need to ship a lot less stuff than we thought, at least across the oceans.”

 

hanjinA Hanjin floating corpse

Photo credit: AP

 

Get-Rich System

As we recently reported, China’s exports are falling at a 10% annual rate, in U.S. dollar terms. If you’re not exporting stuff, you don’t need ships to send it anywhere.

But as the global economy sinks, debt rises, financed by central banks. According to Bloomberg:

 

“The world’s biggest central banks are bulking up their balance sheets this year at the fastest pace since 2011’s European debt crisis to boost lackluster economic recoveries with asset purchases that are supporting stock and bond prices.”

 

3-cb-assets-fed-ecb-bojTotal assets of the Fed, ECB and BoJ – click to enlarge.

 

Let’s see…  How does this work again? The world has too much debt and too much capacity. Growth slows. Defaults increase. So what do central banks do? They facilitate governments adding to their debts and they finance more capacity.

The feds used fake money to give the economy fake credit,  which was used to buy real resources, which were squandered. Now we have an abundance of claims (debt) against declining future output. How was that ever supposed to work?

An economy is a moral system, after all. It is not a get-rich system. You get what you deserve, not what you want or what you expect. Over the long run, the economy punishes waste, error, foolishness, impetuousness, laziness, arrogance, and indiscipline.

Americans now are being punished. Gently, so far. The lash will sting much more later.

 

Charts by: S&P, StockCharts, Ed Yardeni

 

Chart and image captions by PT

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 

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