This one is coming in a bit late, and without my comments this time... except to say that global production has peaked because global petroleum has peaked. Many of the primary upstream production processes have been permanently taken offline. I got that info from industry insiders and the news confirms this. If we are to return to past consumption and production patterns, it will be due to some new energy source that is not petroleum dependent and that is scalable. Even then, it will take a decade or more to bring it online. So even if we do have a scalable true alternative to petroleum, which we don't, but even if we did, it would be likely decades away.
All the below is probably a continuation on the analysis from the debt collapse situation.
After debt collapse, we still have peak oil and lack of true scalable alternatives.
Some are arguing that all of this debt collapse was brought on by 150 USD oil... which then tipped us into debt collapse and temporary this deflationary vacuum. Hyperinflation is guaranteed now because the response was to print, print, print.
We try to prop up the debt bubble with more debt to keep the status quo alive. But the status quo is debt dependent and petroleum dependent. Regardless of what our leaders would have us believe, our way of life is being negotiated for us whether we like it or not. The end result is that we will have to change our way of life. It will probably not be a function of debt nor of petroleum. One can only imagine what will replace those modern tools of western empire in decline.
See these two maps?
The world's wealthy economies require resources that they don't have.
The above pictures explain more about global politics than 100 combined mainstream media outlets.
(did I say no comments...???)
Cheers,
Tate
Privateer quoted (in part) below...
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The Privateer
2009 Volume Early February Issue Number 622GLOBAL REPORT
THE WORLD'S FACTORIES ARE CLOSING
The global deflation is hitting the ground around the world with a mighty crash as HUGE numbers of factories close while unemployment climbs.
When Deflation Hits The Factory Gate:
This is clearly seen in the US economy. The US gross domestic product (GDP), the broadest measure of the nation's economic activity, fell at an annual rate of 3.8 percent ("adjusted for inflation") in the fourth quarter. What surprised many was the growth in unsold inventories. US businesses were unable to sell the goods they had on hand. Excluding the growth in involuntary US inventories, GDP would have fallen by 5.1 percent.
US businesses are responding as they must by slowing production or actually shutting down manufacturing plants. US unemployment has now reached 7.2 percent officially and will climb higher. Further, businesses reduced corporate investment in new capital goods at an annualised 19.1 percent in the fourth quarter. The total stock of US capital is contracting.
It has to because current output cannot clear markets at present prices so unsold inventories climb. At some lower point, prices can clear markets, but few in the US can sell at these prices without piling up losses.
Total US consumer spending, which accounts for 71 percent of economic "growth", fell 3.5 percent in the fourth quarter after a 3.8 percent fall in the third quarter. US domestic demand - final sales to domestic purchasers - dropped 4.9 percent in the fifth worst quarter since WW II. Total US credit/debt outstanding at the start of the "crunch" last year was 365 percent of GDP compared with 260 percent in 1932. The debt is deflating!
There is a long way to go from 365 percent in debt/credit to 260 percent.
Deleveraging The American Consumer:
US banks and other lenders nationwide are limiting and/or shutting off consumer credit card lines - even for many customers who carry low balances and pay on time. As much as $US 2 TRILLION in US consumer credit - nearly half of that which is now outstanding - could be rescinded this year. This is a contraction of the US credit money system of $US 2 TRILLION! US lenders have no choice, their earlier loans are killing their balance sheets. US lenders have rediscovered "credit standards" by necessity.
US consumers are responding in kind. They boosted their savings in December as they sought to insulate themselves from the spreading US recession. The rate rose to 3.6 percent, the highest level since May. US consumer prices fell 0.5 percent in December from November and are up just 0.6 percent in a year.
US Deflation Hits The American House Owner:
The US housing market lost $US 3.3 TRILLION in value last year. About $US 6.1 TRILLION of value has been lost since the housing market peaked in the second quarter of 2006. Last year's decline was almost triple the $US 1.3 TRILLION lost in 2007. The facts in only this market and not including the crash in shares and commodities show that in terms of size, President Obama's "stimulus" does not come close to compensating for the deflation. $US 6.1 TRILLION in falls beats $US 819 Billion hollow.
The Contracting US Industrial Base:
Nearly one in four US manufacturing jobs have vanished since 2000 and 40,000 factories have closed since 1998. The three largest US railroads have said that between them, they have put 107,000 rail cars in storage amid a deepening slump in freight. That is 17 percent of their combined fleet. US exports in the fourth quarter fell 19.7 percent while imports dropped 15.7 percent. This is a physical fall in output.
US factories in some top steel-producing states including Indiana, Ohio, Pennsylvania and Alabama are running at 45 percent of capacity with 40 percent of their workforce (about 25,000 people) on furlough.
A Deflating Trip Around The World:
The standout feature of the global deflation is the massive contraction in manufacturing that is currently taking place. In Brazil, industrial output fell 14.5 percent in December, the most in at least 17 years, the statistics agency said February 3. The world manufacturing slump showed the global economic downturn has now cost China as many as 20 million jobs and it was still in full swing. The South Korean Ministry of Economy reported on February 2 that its exports in January fell 32.8 percent over a year earlier and imports fell 32.1 percent as consumers cut spending amid the deepening global recession.
South Korea's exports to China fell by 32.2 percent from a year earlier, those to the United States by 21.5 percent and those to European markets by 46.9 percent, the ministry said. South Korea's GDP fell 3.4 percent in the fourth quarter compared with the same period the year before and contracted 5.6 percent from the third quarter. South Korea's economy acts as an economic mirror in which can be seen the state of all other economies. This is so because South Korea prospers when it can sell its manufactured goods to the world and slumps when one of the bigger global economies goes backwards. South Korea is very export dependent, its GDP is nearly fifty percent export based, the highest in the world.
Japan - A Super Sized South Korea:
Japan's economy is running parallel to South Korea's in terms of a crashing industrial output. This can be seen from the 9.6 percent month to month slide in industrial production in December, Japan's second record fall in a row. South Korea, Asia's fourth largest economy, has matched the Japanese gloom by announcing its own record 9.6 percent month to month decline in its industrial output for December.
Japan's steel production fell by 28 percent in December in the steepest decline recorded for six decades.
Japanese new machinery and tools orders had their steepest monthly fall on record in November. Core private sector capital goods machinery orders fell by 16 percent from October. This shows that in Japan, the industrial machine park and its tools are being "mothballed" for a deep world depression.
Global Deflation Overview:
Just as existing wealth is unconsumed economic goods, future wealth is an expanding stock of tools and capital machinery with which to produce future consumer goods. When these production goods contact with global factory shutdowns, the world is not facing a deep recession but a global depression.
Deflating Global Commodities:
The worldwide crash in commodity prices is still rolling downwards. Naturally, with factories slowing or shutting down across the world, there is less demand for the basic commodities they use. The CRB Index of 19 raw materials has plunged 54 percent from its July 3 record, the peak of the six-year mining boom that delivered resource producing nations record profits. The measure has dropped 5.5 percent this year.
From Deflating Commodities - To Factories - To Unemployment:
The export incomes of the resource-producing nations have fallen drastically so their currencies have dived. In future, their calls upon imports from consumer and capital goods exporting nations will fall further than they already have. Consumer and capital goods exporting nations will therefore see their exports decline. This will shrink their export industries and this is where climbing unemployment in many of these affected economies will show up first. Unemployment climbing in export industries always shows up later inside all economies. When people from the export industries no longer show up to buy in the local shops, local retail trade contracts. All these global events spill over into climbing internal unemployment and then - everybody can see the economic recession. This is where we are now.
The Futile Attempts At Reflation:
Since September 2008, nations everywhere have tried to hold their internal price levels up by massive cuts in their official interest rates. They have marched them towards zero in lock step, all done for the purpose of re-igniting their internal credit expansions. These attempts have failed. The deflation in stock markets, real estate and commodities worldwide has already plowed them under. Now, governments everywhere are attempting to use "deficit spending". Budget deficits are being thrown into the breach across the world, from President Obama's "stimulus" to many others, all done in an equally futile attempt to use more government borrowing and spending to replace the borrowing which the public is no longer prepared to do. In fact, from the US to Australia, the evidence is climbing that the public across the world are actually starting to increase their household savings and to repay debts. This last, the repayment of loans, is fatal to any credit money system where deposit money is originated as loans. As such loans are repaid, in the act of repaying the money borrowed, not only does the loan on the bank's books disappear, but so does the credit money credited to the account.
When Credit Money Systems Deflate:
The repayment of a loan of credit money "credited" to the account of a borrower DEFLATES the sum total of credit money inside the credit money system. It is a REAL contraction in the quantity of credit money. Once this starts to happen (and it IS happening), the faster people and businesses repay their loans, the faster the total quantity of credit money in use contracts. That is a LITERAL monetary deflation taking place on the credit money side. Using past monetary history from many nations as a guide, once the general public starts to repay loans, they often also increase their own holdings of cash held in hand or in near cash in an institution of choice. This appears to be happening in the US right now.
The US M2 (also called narrow money) supply has jumped by $US 36.6 Billion in the past week to reach a record $US 8.257 TRILLION. US narrow money has now inflated at a 20 percent rate over the past 18 weeks and has jumped $US 794 Billion (or 10.6 percent) over the past year. The critical point here is that the rate of going into CASH or "near cash" has climbed from 10.6 percent to 20.0 percent! US bank credit, on the other hand, FELL by $US 42.3 Billion over that same week to $US 9.801 TRILLION.
It is early days, but this US data does show a small move away from credit money towards money in near cash and/or outright cash. With the US savings rate now at 3.6 percent, the platform is being put in place for a contraction of bank- issued credit money towards near cash as savings climb and also towards cash itself. Americans are starting to decide that cash money held in hand is safer than banks holding it.
The US Fourth Quarter:
The politicians in Washington expect to be able to "stimulate" the American consumer into borrowing and spend as before. The latest US quarterly data invalidates this idea. US spending on durable goods like cars, furniture and domestic appliances plunged by 22.4 percent during the quarter, the biggest drop since 1987. The amount spent on food and clothing dropped 7.1 percent, the steepest quarterly decline since 1950! Overall, US consumer spending was down 3.5 percent. US savings climbed by 3.6 percent.
US business investment dropped at a 19 percent pace, the most since 1975. Purchases of equipment and software dropped at a 28 percent pace, the most in half a century. This is a massive capital contraction.
Across The Street To The "Business" Of US Politics:
The US Treasury Department says it will need to borrow $US 493 Billion in the first three months of this year, a record amount for the January-March period. The Treasury says that figure comes on top of the $US 569 Billion the government borrowed in the last quarter of 2008, the all-time high for any quarter. The US is now expected to borrow a record $US 2.5 TRILLION over the fiscal year ending on September 30, nearly THREE TIMES the $US 892 Billion it borrowed over the prior twelve months.
The Global Central Point:
Using data from the Bank for International Settlements (BIS), the OECD and others, it is known that the $US 2.5 TRILLION in NET free savings does NOT exist in the entire world. The world cannot "fund" these monstrous US deficits. Worse, when the US budget deficit of $US 2.5 TRILLION is compared to the US nominal GDP of $US 14.3 TRILLION, the budget deficit is 17.5 percent! Something has to give.
US Dreamworld Financing - Versus - Reality:
Something is. In Hong Kong, an enterprising local real estate group teamed up with a local travel agency and offered a trip to California to look at US houses in foreclosure. The real estate people had expected 40-50 people to be interested. They got 14,000 serious enquiries. They folded the trip.
They were too small to handle the situation. But magnify this situation across the US from coast to coast. Today, there is no doubt that an Asian syndicate with their own mega-bankers behind them could make a serious bid for California and pay for it in cash! Now reverse this situation. California, the eighth largest economy in the world on a stand alone basis, sends the "Terminator" over to Hong Kong to try and borrow a piddling $US 42 Billion which would fill the hole in his state budget. The Asians all say no.
Wielding A Tin Cup And A Gun:
Now look ahead a few weeks, or at most a few months, to the time when President Obama has to send his Treasurer over to Asia to ask them to fund most of his $US 2.5 TRILLION budget deficit for this fiscal year. All of Asia, including China, says no. Geo-politically, this is already feared. The evidence is simply that the first foreign trip that Secretary of State Lady Hillary will make is to - Asia! She is not going to Europe or anywhere else on this trip. She is going to where the money is, to ask to borrow it.
Here, the global pivot is structural. The fact is that Asia could help the US to fund its budget deficit by stripping themselves of more than half of all their foreign exchange reserves this year. But what about NEXT year? They cannot do that and the Asians know it. The structural point is that there is a forward time horizon in front of the US of only ONE year to resolve its own budget deficit problems as well as its now unrepayable external debts and. That year is THIS year - 2009. The Asians know this too, as does Japan, Russia and the European Union. What they fear is that a financial collapse of the US will hurt them. If Asia lends to the US, it will crash next year, If Asia does not, the US will crash THIS year.
Three Global Deflations:
As analysed in earlier issues of The Privateer, these are the global share market crash, the real estate crash and the commodities crash. All three are still unfolding with more falls to come as the accelerating global factory shutdown cuts in under these vast markets with the unemployment which is now climbing in all industrialised countries. We are now on the verge of the fourth deflation. That is the global bond market crash as exploding government budget deficits will act to force interest rates higher - typically the exact opposite of what is "wanted" - followed by huge leaps in commercial interest rates.
Crowded Out By Political Borrowing:
Climbing interest rates for government bonds can now be observed in the US. Commercial rates of interest in the US have already moved upwards rather drastically in the past few weeks. Here, a phenomenon known as "crowding out" raises its head. When governments increase the quantity of bonds they unload on the market, they decrease the available funds for all other participants who then have to offer a higher rate of interest on their bond offerings until they reach the limits of what they can afford to pay. At that point, such business and private borrowers are "crowded out".
US yields on investment-grade corporate bonds, for example, stood at 8.24 percent on January 22 compared with 6.45 percent at the start of 2008, according to data compiled by the Fed. That, in gearing terms, is an increase of 27.75 percent in the costs to US businesses which are trying to borrow.
Bond Prices Yield To Interest Rates And A Steepening Yield Curve:
On December 26 last year, the difference in yield between US Treasury two-year and ten-year debt paper stood at 1.25 percent. By February 5, this "spread" had blown out to 1.95 percent. This "steepening" of the yield curve and the rising rates are now having their effect. Investors are fleeing US Treasuries. While the Dow was down 8.1percent on the year so far as of February 5, the US 30-year Treasury bond was down about 10 percent.
These are the losses so far this year! In terms of capital, the entire US bond market is much bigger than the US stock market. It should be clear that massive losses have already been taken by holders of US bonds of all descriptions. Across the world and in the US, when current US bond holders revalue their portfolios they will see this fall of more than 10 percent on their holdings.
Caught In The US Headlights:
In the face of all this, buyers of US bonds are only backing off so far. But there is an invisible point ahead where accumulating losses on US bonds, government and commercial, will become too much to bear. At that point, a global cascade sell-off of US bonds is in prospect. This is the danger point! Once a sell-off begins, US bond prices of all descriptions will fall in value, and the inverse will also happen. US bond market rates of interest rates will be soaring upwards. The losses will be astronomical as everybody from central banks to private holders of US bonds see their investments slaughtered. When the dust clears, this event will be seen as not only the greatest bond crash in history, but also as the greatest DEFLATION of them all, putting the three earlier ones completely in the shade.
The US Is The Ignition Point For The Global "Bond Fire":
The US bond market sell-off now in prospect is certain to ignite sell-offs in nations with high government debts funded by their earlier bond issues. Just as the share markets worldwide all joined up together in their crash and the real estate and commodities markets did likewise, so a US bond market sell- off could act as the ignition point for a worldwide conflagration of the present bond markets. From there, it is a short and inevitable step to chaos in the world's monetary system.
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Permission to quote short exerpts is given, proficed that full attribution is included - as follows:
©2009 - The Privateer
http://www.the-privateer.com
capt@the-privateer.com
(reproduced with permission)
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