Thursday, July 23, 2009

Striking charts: Singapore GDP; G7 unemployment

The thing about a global turning point is: some economic indicators will increasingly improve, while others will continue to worsen.

Singapore experienced a large 20.4% annualized jump in GDP.

Statistics Singapore notes that the surge in GDP was significantly influenced by a spike in biomedical manufacturing that drove the contraction in manufacturing output up from -24.3% annualized in Q1 2009 to just -1.5% annualized in Q2 2009. This is unsustainable, but still welcomed first-derivative news. Finance and tourism needs to bounce back.

On the other hand, G7 unemployment rates continue to surge causing havoc on final domestic demand.

The G7 unemployment rates will likely rise for months (quarters) to come. Eventually, though, massive monetary and various fiscal stimulus packages will halt the surge. Already, Germany and US are seeing their unemployment rates stabilize on a Yr-Yr (annual change) basis.

When do you believe that the global economic recession will end?

Q2 2009
Q3 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010

Rebecca Wilder


  1. Depends on your definition of "end".

  2. If you define it as a single quarter of at least 0% growth, my sense is it could be as early as Q3. But if you define it as when the overall contraction / retrenchment truly ends, my sense is not earlier than Q3 2010.

    But then I'm not an economist ... and not especially known for seeing the glass half full.

    What's your sense Rebecca?

  3. As long as new credit growth continues to shrink or remain flat, cash shall continue to be the means of economic transaction -- the swap of one thing for another.

    Thus, persons shall continue to change their weighting on what is important and what is not.

    This means that production for many luxury goods shall continue to fall and along with the fall, prices, while prices for necessary goods shall continue to rise.

    According to Mr. Bernanke, banks have not lent the trillions of new money created by the Federal Reserve (FR), but rather have collected payment for interest by parking the money with the FR.

    New Credit growth is the fuel for the economic engine for luxury goods. Until credit growth returns, the economy shall continue to contract.

    Without an increase in the tonnage of things made -- more steel, more wheat, more computer chips -- and without an increase in the hours of services rendered -- more lawyering, more finger nails painted, more rugs cleaned -- corresponding growth in the economy does not happen.

    Since GDP is a mathematical product, tons or hours x prices, it's easy to show an "increase" in GDP simply by raising prices. Yet, this isn't real growth.

    And an economy cannot not have expansion -- the opposite of recession -- without output growth. Prices (more money and credit chasing the same output) have nothing to do with it.

    As long as Bernanke and the policy board at the FR continue to practice deflation -- the purposeful act of shrinking credit -- the result shall be recession.

    Not until either inflation -- the purposeful act of growing credit -- or the shrinkage of the U.S. government and corresponding debt happens, shall economic expansion happen.

    After all, a reduction in U.S. debt would force investors to find new investment over U.S. treasuries and thus spur economic output, which would put persons back to work and then of course, put forth cash available for new output buying.

    Note: in academia economics, 'luxury goods' and 'necessary goods ' have precise meaning.

  4. [When do you believe that the global economic recession will end?]

    Well, according to the Gov of the BoC, for Canada, it has now ended:

    [...][The dramatic shift is the result of stronger financial conditions, surprisingly high consumer and business confidence and a first-half contraction that was less severe than the economic catastrophe the central bank was bracing for when it last published its views on the economy in April.

    If the bank's new forecast proves correct, Canada's first recession since the early 1990s lasted three quarters, making it one of the shortest downturns on record. ][...]


    You say, “Well, according to the Gov of the BoC, for Canada, it has now ended:”

    That is very true…for Canada – the BoC is looking at a 1.3% annualized growth rate for Q3 2009. The US recession is likely to end soon, too. Claims and LEI foretell that the US recession will likely end in Q3 2009 (but alas, we must wait for the NBER).

    But the global recession – that is a tricky one, like Janie says. If one measure the global recession on a growth basis, i.e., positive growth, it seems that big emerging markets (i.e., China) may be able to pull or already have pulled the economy out of this one. But me, I think that the global recession’s end will lag the end of the US recession by about a quarter. Therefore, I put the end of the global recession at Q4 2009.

    And SMACK, you say: Since GDP is a mathematical product, tons or hours x prices, it's easy to show an "increase" in GDP simply by raising prices. Yet, this isn't real growth.

    I am confused by this, and I know that you know what real gdp is. Presumably, you are suggesting some sort of government conspiracy in the measurement of real gdp? That somehow positive growth in real GDP does not equal rising hours or tons? I don’t buy it.

    “a reduction in U.S. debt would force investors to find new investment”

    I don’t necessarily buy that either – a reduction in US (consumer) debt means less sales, less profits, and yes, less investment….less income to workers, less spending, less sales, etc.

    By the way, you are pretty funny. It must be very frustrating being so angry at those academia economists…

    FREUDE BUD – a “global recession” is rare; and to my knowledge, it is not properly defined. It would represent a point at which quarterly global GDP is no longer contracting. As I said to Stephen above, I believe that will happen at roughly 1 quarter lag behind the point at which the US economy begins to turn around, which I expect will be Q3 2009, so Q4 2009 is the end of the global recession (I am on the more “cautiously optimistic” side).

    Hi Aunt Jane!

  6. What is the chance that expected oil price shocks will be seen as ordinary inflation leading to contraindicated tightening?

  7. Rebecca:
    I had considered the "global" aspect, which is why I caveated my post to Canada, but Canada is hardly the only nation to show a change of direction. Your points are very fair, and we'll see how this plays out (there is massive discussion in this nation, much of which you'll read, on Carney's comments, but this is part of a topic you've touched on a number of times:

    Does the US "lead" the World out of recession?

    That remains highly contentious, albeit what might be more apt, is the dynamic of 'imminent recovery in the US leading the World' (out of recession.

    The IMF's comments on China were most interesting, but I will comment more on that later.

    Salsman's question at first may seem remote, but I suspect he's onto something quite valid: Resource prices.

    I think there may be a few surprises on the other side of the 'V' this time around.

  8. You amuse me, Rebecca.

    Government bureaucrats are too stupid to act as conspirators.

    GDP measurements prove useless because of price distortion.

    "Real GDP" is fake because the GDP Price Deflator, always, is incorrect and arbitrarily chosen. Whenever it's expedient, new years get chosen as the deflator base.

    Superior measures account for per capita output restricting persons to working age adults, e.g., tons of wheat per 18 to 59 year old or kilowatt hours of electricity per 18 to 59 year old.

    Yet, Rebecca, you must hone your reading comprehension skills.

    Your cherry-picked partial quote -- “a reduction in U.S. debt would force investors to find new investment” -- fails to include the salient phrase "over U.S. treasuries".

    If the U.S. debt (U.S. treasuries) market would shrink, investors would be forced to seek other investment. That's a fact.

    That you bring up consumer debt in the post shows that you need to conjure up a phantom to buttress your weak counter-argument.

    Also, I must have struck a nerve in you that you'd try to use the ploy of innuendo against me by bringing up your false belief about me and academia economists.

    Meanwhile, no where in my above post do I mention them. Shouldn't your comments stick to the topic at hand?

    Yet now that you have, we should discuss how academia amounts to nothing more than a citadel, a church whose upper priests seek new recruits in order to get paid.

    It's clear to the world that academia economics has failed because it's priests have been trained in the bogus doctrine of Kenynesianism and to a lesser extent, Chicago monetarism.

    Who's your favorite priestly moron? Paul Krugman?

  9. Hello SMACK,

    In almost every comment you leave on this blog, you refer to flawed academia economists. I was simply referring to a train of thought that I have recognized over the last year.

    Investment over U.S. Treasuries - fine, and I apologize. But there is still a long string of events that need to occur between the portfolio investment and the fixed investment (that actually spurs growth). You are right, rising deficits and growing debt can crowd out investment over the medium term, but that does not preclude growth.

    Hi JAMES,

    Over the next year, probably nil. But after that, it seems to me that it usually goes the other way around. Oil prices start to influence current inflation rates, which gets tied up into expectations. Then policy makers react. Oil prices are historically very volatile, which is why the some central banks exclude them when making policy decisions. But if the expected shock is strong enough, the central bank would have to react.

    And STEPHEN, I think that you are right - there is an upside risk of a V. So much global policy in the air.

    Thank you all for your comments, Rebecca

  10. Rebecca,

    You make a claim that "a long string of events that need to occur between the portfolio investment and the fixed investment (that actually spurs growth)."

    Exactly, what are those events?

    Also, you say that I am right about the growing U.S. debt fueled by rising deficits can crowd out investment over the medium term -- as you say it -- but such crowding out does not keep growth from happening.

    Of course this is true.

    The inventiveness and skillful nature of men drive them to forge new relationships through which they skirt blocks such as traditional sources of cash for rent.

    Yet, we know conclusively that no amount of government spending induces economic growth.

    Picking the pockets of wage earners and shopkeepers to transfer such money to government debt financing bondholders as well as welfare collectees does not spur growth.

    Only through the establishment of fixed investment -- private enterprise production plant and equipment -- does growth happen, which you are sharp to agree.

    The Obama Administration failed by not reducing the size of government -- the cumulative debt by running surpluses.

    Additionally, the Bernanke Administration of the chartered monopoly for money and credit failed by not raising the interbank lending rate, while reducing reserve requirements thus to induce profitable, prudent cash renting.

    Instead bonehead Bernanke did the opposite. He reduced the interbank lending rate to near zero thus making cash renting unprofitable and he both increased reserve requirements while simultaneous paying interest on non-reserve balances, thus killing credit.

    Why did Bernanke act so foolishly?

    You guessed it! He knows nothing about the Great Depression and its causes, in spite of the hype about his academia economist credentials.