Oliver Hartwich on doom and gloom in the global economy and the Donald Trump effect

Oliver Hartwich on doom and gloom in the global economy and the Donald Trump effect

Today's Top 10 is a guest post from Oliver Hartwich, the executive director of the New Zealand Initiative.

As always, we welcome your additions in the comment stream below or via email to david.chaston@interest.co.nz.

And if you're interested in contributing the occasional Top 10 yourself, contact gareth.vaughan@interest.co.nz.

See all previous Top 10s here.

1) Brazil’s recession

In case you have missed it, the world economy is in crisis mode. So welcome to Friday’s Top 10, The Doom and Gloom Edition. If you bear with me for the first nine stories of economic turmoil, I will reveal the real reason for our troubles at the very end.

To kick us off, let’s remember that the emerging markets’ crisis is more than just about China. Consider the case of Brazil, where crisis symptoms abound.

Brazil analysts forecast faster inflation and a deeper contraction next year, putting them at odds with the country’s top economic officials. Brazil’s inflation will accelerate 5.50 percent in 2016 compared to last week’s estimate of 5.44 percent, according to the Aug. 21 central bank survey of about 100 analysts. They also forecast the economy will shrink 0.24 percent in 2016, down from a 0.15 percent contraction last week. It was the third straight week economists increased their consumer price forecast and cut their GDP estimate for next year.

2) More gloom and doom (with no boom in sight)

The celebrated author of the Gloom, Doom, Boom Report, Marc Faber, does not give us much reason to be optimistic, either. 

We have a slowdown practically everywhere and if you take out the fudging of statistics, the economy for the median household everywhere in the world is not doing particularly well. If the global economy were doing so fantastically well, how would it be that commodities collapsed to the extent that they have declined? Or how would it be that the currencies of American markets and some of them have actually declined by more than 50 percent against the U.S. dollar in the last three years. How would this happen? So I do not believe that we have a healing of the global economy. On the contrary, I believe that the global economy is slowing down and that essentially equity markets are not particularly attractive. 

3) Satyajit Das and the illusion of liquidity

Star analyst Satyajit Das explains how regulations and central bank interventions after the Global Financial Crisis have distorted markets, thereby exacerbating the crisis. 

The problems of trading liquidity fundamentally highlight the distorting effects of intervention in market mechanisms. Official policies in the aftermath of the financial crisis have forced excessive risk-taking in search of returns to prevent erosion of the purchasing power of savings. At the same time, regulation changes have reduced trading liquidity. Over time, the process feeds on itself, with investors becoming increasingly exposed to ever more risky financial assets that will become illiquid in a crisis, thus triggering a major collapse in prices. The process is difficult to reverse. Withdrawal of liquidity would precipitate the problems. Yet, the more money central banks add to the markets and the longer they take to withdraw their support, the greater the distortion to normal market functioning and the larger the risk. 

4) Australia heading for recession?

News from across the ditch is getting gloomier as well, and even The Irish Times is reporting on Australia’s uncertain economic future. 

Dr Mark Melatos, senior lecturer at the University of Sydney’s school of economics, says China’s flagging economy is having major repercussions in Australia. “We’re just seeing the start of it. I’m pretty pessimistic. Australia hasn’t had a recession for 25 years and we can thank a lot of that to the commodities boom, which has basically been due to China. And now that’s falling apart, so I would imagine we will end up with a recession sometime in the next couple of years,” he told The Irish Times. 

5) Even Rupert Murdoch is worried

It’s not just that The Irish Times that is worried about Australia; it’s also Australia’s Rupert Murdoch who is worried about pretty much the whole developed world.

News Corp boss Rupert Murdoch has summed up just how precarious markets and the economy are at the moment in just two tweets on Friday. Murdoch warned it's not just stock prices that are falling and suggested we might be on the edge of another global crisis. He also said that central banks would have precious little ammunition if the world heads into recession. 

6) Gold the new ‘safe haven’?

Writing in USA Today, market trend forecaster Gerald Celente explains why gold could be the safe haven in the current global economic turmoil. 

Conventional wizards now advise to take a deep breath, it’s merely a correction and there are buying opportunities. We disagree. Global central banks’ low interest rate policies and massive quantitative easing liquidity injections merely relieved symptoms of the Panic of ’08, but were not the cure. Therefore, in this environment of currency devaluations, failing economies and a series of other trend lines leading to increased global conflict and social unrest, we forecast gold will be highly valued as a safe haven commodity.  

7) When Greek economists get worried about China

If you thought Greece’s crisis was bad, you ain’t seen nothing yet. China is going to be 1,000 times worse, writes Forbes contributor Panos Mourdoukoutas.

Things are even worse in China when it comes to the potential of a systemic risk crisis. Government-owned banks lend money directly to government owned corporations, which usually function as welfare agencies; and to land developers, who are behind the country’s “investment” bubble, one of the engines of the Chinese economy. Now, think about the size of the Greek economy vis-à-vis the size of the Chinese economy. You can see why China’s financial crisis could be a Greek-style crisis on a grand scale, unsettling world financial markets, as the country’s regime will try to export that crisis through currency devaluations. Investors around the world just got a taste of what that means for currencies, commodities, and equities.

8) Eurozone still heading for collapse: Roubini 

Dr Doom, aka Nouriel Roubini, has made another pessimistic prediction. The eurozone will not last, the American economist just told a German audience.

 American economist Nouriel Roubini said on Wednesday that the Eurozone will break up unless the member states restore economic growth. The New York University professor was speaking at a conference organised by IG Metall, Germany's biggest trade union, in Berlin. He said that the Eurozone was not paying enough attention to job creation and GDP growth, because it was too focused on austerity. "If I had to propose policies that change that historic road I would say we have to postpone the fiscal austerity in the periphery and do it more gradual, slower rather than faster. In countries like Germany where there is fiscal space instead of doing fiscal austerity now you have to postpone it and you have to do fiscal stimulus," he said.

9) A global commodity crisis

It’s not just an ordinary stock market crash we are witnessing but a crisis of commodity prices across the board. Which makes you wonder whether gold really is a safe haven after all. 

If the Bloomberg index is any indication, the plunge between its 2011 high and now is worse than its fall during the Asian financial crisis in the late 1990s. The index has declined over 51% since its 2011 peak of 175.42, recording a greater fall than that of 42% between the high of May 1997 and the low of February 1999. However, the index suffered its worst decline during the global financial meltdown of 2008, losing 57% between its peak of 237.95 (July 2, 2008) before the crisis flared up with the collapse of Lehman Brothers and the low of 102 (March 2, 2009) after which the index started inching up gradually. 

10) It’s Trump’s crisis

Thank you for bearing with me through all of these doom and gloom stories. As your reward, let me reveal to you who is responsible for the global crisis: Donald Trump!

Investors and financial journalists scrambling to find an explanation for the recent plunge in global stock markets have plenty of suspects. Some look abroad for scapegoats: Greece or China. Others blame Janet Yellen: the Federal Reserve she chairs is at long last on the verge of raising interest rates, if only slightly. Personally, I blame the decline in share values on Donald Trump. Markets are finally taking note of the fact that the Republican presidential candidate atop the polls is someone who wants to restrict immigration, cut back on foreign trade, and raise marginal tax rates. In each case, Trump’s policies are the opposite of the pro-growth approach. 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Is it Trump or is it
To big to fail governments
To big to jail governments

The rise of Trump is just another example of the rise of the far right as Michael Pettis predicted. There is widespread dissatisfaction worldwide with the lack of reform coming from the centre left and centre right so people turn to the extreme parties. Basically the centre parties are seen as stagnant and only interested in feathering their nests. If you don't get steady reform to reflect the changing times then you build up pressure for revolutionary change (almost always a really, really bad idea).

by the same token in europe there has been a rise in far left parties

Far right seems to be on the rise in Germany, again.

Trumps tax plan.
Up to $30,000, you pay 1%
From $30,000 to $100,000, you pay 5%
From $100,000 to $1 million, you pay 10%
On $1 million or above, you pay 15%
http://www.taxjusticeblog.org/archive/2015/06/donald_trumps_regressive_a...

Sounds good, but I am reminded of what my father said about the Nazis - they had some good ideas at first....

Why would you associate Trump with the Nazis'..... ??

I like his tax policy... pretty straightforward.... (maybe he could have thrown in something about Multi national taxation..)

Why taint it with your comment..??

This comment rankles a bit, it can be applied to any and all situations and implies that all ideas are bad and should be rejected out of hand as potentially harmful along with a casual suggestion that someone may be inclined to behave in a similar fashion to Nazis.
eg: Proposing a cure for cancer "Sounds good, but I am reminded of what my father said about the Nazis - they had some good ideas at first..."

just need to link it to population groupings (ie standard deviations). In the low 2nd or greater sd pay 1%..

"Reagan, Bush, Clinton, and Bush – in the religious belief that “free trade” will save us all. It’s nonsense. “Free trade” is a guaranteed ticket to the poorhouse for any nation, and the evidence is overwhelming. (Ironically, the concept of “free trade” was introduced by Henry VII in 1487 as something that England should encourage other countries to do while it maintained protectionism. It was invented as a scam.)"

http://www.nakedcapitalism.com/2015/08/picking-apart-one-of-the-biggest-...

Free Trade is good when countries can't produce their own product or enough of their own product. eg garlic. and when controls on the market would instead create more black market demand. Otherwise it's market & economic suicide (it creates commoditisation pressure across all internal markets, which only ever favours the biggest corporation with the wealthiest backer). the maths is pretty basic.

I haven't followed Trump too closely but I think his popularity is that he isn't cowed by PC.
Some excerpts from Radio NZ's Forum Rules. They smack a little bit of censorship to me?

This is not a place for keyboard warriors to unleash hell and fury. We want people to feel safe and respected on our community forums.

Think about your post before hitting the publish button. Ask yourself: would this offend someone? Is it defamatory? How would you react if someone else wrote the same thing?

Don’t say anything you wouldn’t say to someone’s face. Some topics need real talk, and people aren’t always going to agree. But politeness goes a long way.

http://rnztalk.nz/faq

This nice talk only means the rules are slanted towards migrants/refugees which is interesting because (quoting) Josie Pagani the free movement of working people across borders is a progressive principle

Regarding point 8, it does appear that the Eurozone is indeed headed for, at best, perpetual stagnation. Unless Germany changes its tune.

What's really interesting are the driving forces behind Germany's malign economic direction it forces on the periphery, and the fact that it simply defies the mainstream economic textbook theories (a little like when Mr English declares that governments and households are equivalent financial entities).

One day, there will be a high price to pay for such lunacy.

Yes well, this is all part of the plan. The tendency for a crisis to take place was built into the very structure of the Euro currency area. Its transpired all precisely according to plan.

"Ronald Reagan would not have been elected president without Mundell's influence," once wrote Jude Wanniski in the Wall Street Journal. The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, "voodoo economics": the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher.

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics:

"Monetary discipline forces fiscal discipline on the politicians as well."

And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.michael kors outlet australia

Thus, we see that then (unelected) Prime Minister Mario Monti was demanding labor law "reform" in Italy to make it easier for employers like Mundell to fire those Tuscan plumbers. Mario Draghi, the (unelected) head of the European Central Bank, was calling for "structural reforms" – a euphemism for worker-crushing schemes. They cited the nebulous theory that this "internal devaluation" of each nation will make them all more competitive"
- See more at: http://www.occupy.com/article/robert-mundell-architect-euro-always-envis...

"Monetary integration involves a consideration of two quite different types or dimensions of sovereignty. One is “policy sovereignty” and the other, “legal sovereignty.” Policy sovereignty refers to the ability to conduct policy independent of commitments to other countries. Legal
sovereignty refers to the ability of a state to make its own laws without limitations imposed by
any outside authority. Both concepts need to be considered in plans for monetary unions. What
are the implications of a change in legal sovereignty when the national currencies of some of the
oldest states in the world abandon national sovereignty, and what will they receive in exchange?
In the middle of the last century, Johns Stuart Mill recognized but deplored the sentiment that
made nations so attached to their own currencies:
“So much of barbarism still remains in the transactions of the most civilized nations, that almost all independent countries choose to assert their nationality by having, to their own inconvenience and that of their neighbours, a peculiar currency of their own."
http://www-ceel.economia.unitn.it/events/monetary/mundell14.pdf

Gee, this website seems to be getting dominated by left wingers these days....there used to be more balance

The sensible wing just doesn't have as much to moan about :P

I think Mr Hartwich, who prepared the Top 10, would be offended to be called left wing.

12
up

.... really? I don't care if the gummit is left or right, I base it on their actions. Eg dairy growth over clean rivers, rampant migration over training our young, no ability to deal with the Auck property madness, no progress on welfare reform, Auck transport, denial of climate issues, dubious dealings with their chinese business mates ... ...and on it goes

Do you really think I would be 'happy' about all this if the left were doing it? Afraid not, the colours mean zilch - more like an excuse for the apologists of Keys stupidity i'd say.

eg economics proving clean rivers is viable (yes in $8, no in <$5. Processors & councils should put compulsory low/free interest loans to fix the problem (they are profiteering and parties responsible for seeing the results of such endeavours in place) for those unable to immediate do the job but financially unable to do the job. Ballot for the loans/services if there's not enough cash in the kitty.
Would require demands to be sensible though.

Well said!
It also demonstrates the ignorance of electors who think and see only to the end of their street.

Who? Where are these communist infiltrators? Hey didn't you say in a previous post:- "move along now, Chinese will still buy Auckland houses"....

Maybe,just maybe, life would run better for all under the Looney Left than from the Rabid Right who seem to only serve the selfish.

We dont have a rabid right though, ie Act or even more right. Honestly the loony left frighten me as much as the rabid right ie the Sue Bradford and Judith Collins of the world are equally bad for most ppl like me and probably you, IMHO.

AEP with an interesting article on the money supply in the Eurozone.
http://www.telegraph.co.uk/finance/economics/11828779/Reflation-threat-t...

It seems a good news/ bad news article.
M1- cash and current accounts have evidently surged 12% (I assume a year on year figure) and that usually leads to robust spending and economies generally. The good news.
Interest rates may head up to counter things, and although that wouldn't be all bad, there would be losses by bondholders, and no doubt capital flight from somewhere to somewhere, with serious stresses occurring in some places.

This author actually understands what is going on in the current economic world environment and the problems we face. Bravo!!

More articles from Mr Hartwich please.

In each case, Trump’s policies are the opposite of the pro-growth approach.
,,,,,,,,,,
Pro growth (in this case) implies growth can continue forever. So what is Mr Hartwich's model of the world and is it a sound one?

In the long run we are all dead jh

Major Reuters report on the cost of sea level rise:

http://www.reuters.com/investigates/special-report/waters-edge-the-crisi...

Thanks - very interesting.
The timeline maps are fascinating.

Oliver hartwich

A growing population can bring economic benefits. It goes hand-in-hand with increased prosperity and better standards of living. It delivers a larger, better-skilled labour force and more vibrant cities. The real challenge is not to stop population growth. It is making population growth work.

http://oliverhartwich.com/2012/08/22/make-population-growth-work/

That's funny because the Australian Productivity Commission concluded there was little or no benefit to Australians from immigration ; it had all been captured by the migrants.

(Personally insulting and rude post deleted. Ed).

We can attach about as much credence to OH contributions as we did to his predecessor Roger Kerr ( the dead one) from Business Round Table.

I understand that Trump's prime constituency is angry low skilled white men, whose relative lot has deteriorated markedly over 40 years of globalisation and automation. They blame the governments of both hues over that period. Mexican immigrants are an easy scapegoat for this group. Trump apparently seems like antigovernment, and somehow gives the impression because he is used to getting his way in business, that he would do so in government.
His constituents will no doubt be disappointed whoever gets into the White House, whether Trump or not. And I would have thought Trump has no chance in reality. Am not sure he really even wants to get in, as reality may not suit him.

PK says it like it is on Trump,

http://krugman.blogs.nytimes.com/2015/08/26/the-reactionary-soul/?module...

ie Trump is somewhat more honest than any other candidate. I mean he's a "honest" forthright asshole. He may yet win the GOP nomination, actually I hope he does. In a wierd way you have to like him ie he's an obvious straight up whatyou see is what you get asshole. He'll stab your in the chest, most of the rest will stab you in the back or get someone else to, LOL.

Calling people vulgar names is childish.

On the other hand you do not put forward one, not even one single argument in your posting that would prove your point. I guess this is debating culture 2015: vulgar witch hunting.

#4: Australia heading for recession? Sorry, but that is non-news. News would be to write something on the failure of Australian govts and so-called economists to utilize 25 good years to move away from resource dependency.

#8: Oh God.

#10: Sure, a guy who is not even nominated is the root of all economic evil. I personally blame people like O. Hartwich or Schmubeel Ekub. They show that they never got beyond Economics 101, and traders have finally realized that an economist caste made up of one trick ponies (more immigration etc) is a serious danger to the world economy.

Thanks for the Satyajit Das link, always worth a read. He has a new book out; A Banquet of Consequences, have we consumed our own future. http://www.penguin.co.nz/products/9780670079056/banquet-consequences-wt

"Like the characters in Samuel Beckett's Waiting for Godot, the world awaits the return of wealth and prosperity. But the global economy may be entering a period of stagnation.
Over the last 35 years, the economic growth necessary to increase living standards, increase wealth and manage growing inequality has been based increasingly on rising borrowings and financial rather than real engineering. There was reliance on debt-driven consumption. It resulted in global trade and investment imbalances, such as that between China and the US or Germany and the rest of Europe.
Everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road.

Citizens demanded and governments allowed the build-up of retirement and healthcare entitlements as well as public services to win or maintain office. The commitments were rarely fully funded by taxes or other provisions.
The 2008 global financial crisis was a warning of the unstable nature of these arrangements. But there has been no meaningful change. Since 2007, global debt has grown by US$57 trillion, or 17 per cent of the world's gross domestic product. In many countries, debt has reached unsustainable levels, and it is unclear how or when it is to be reduced without defaults that would wipe out large amounts of savings."

Read more: http://www.smh.com.au/comment/satyajit-das-column-20150825-gj7bcy.html#i...
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