Mish's Global Economic Trend Analysis

Get the H* Out OR Shut the F* Up
Wading Through Molasses: "Did the Real Economy, Not Counting Government, Expand in Last 20 Years?"
Eurozone Retail PMI Sinks Again

Posted: 08 Jan 2015 04:52 PM PST

If you live in Saudi Arabia, Iran, Iraq or any nutcase country with no freedom of speech (many of which the US supports), you need to do one of two things ...

Get the H* Out
Shut the F* Up

If you don't the consequences are likely to be severe.

For example, please consider the plight of Saudi Arabian blogger Raif Badawi. He was sentenced to 10 years in prison and 1,000 lashes.

His crime was "insulting Islam" in his "Free Saudi Liberals" website.

The Guardian explains in Saudi blogger to be publicly flogged on charges he insulted Islam.

A Saudi blogger who was sentenced last May to 10 years in prison and 1,000 lashes will be publicly flogged for the first time after Friday prayers outside a mosque in the Red Sea coastal city of Jeddah, according to a person close to his case.

Raif Badawi was sentenced on charges related to accusations that he insulted Islam on a liberal online forum he had created. He was also ordered by the Jeddah criminal court to pay a fine of 1m Saudi riyals, or about $266,000.

Amnesty International has said that Badawi is to receive 50 lashes once a week for 20 weeks.

Third Moral

In an even more preposterous ruling, his lawyer was sentenced to 15 years imprisonment and barred from traveling for another 15 years after being found guilty by an anti-terrorism court of "undermining the regime and officials", "inciting public opinion" and "insulting the judiciary".

So not only had you better shut up or get out, the third moral to this story is "you better not defend someone who doesn't shut up."

Following his arrest, his wife and children left the kingdom for Canada, most likely so they can say what they want about this travesty of justice.

Fourth Moral

For appealing the ruling, Badawi will be in prison ten years, up from the original seven.

Thus, the fourth moral to this story is "If you elect to stay but don't shut your mouth, don't appeal absurd decisions or the result will be even worse."

Where's Obama?

Inquiring minds may be asking "Where is President Obama on this?"

The answer is "The same place George Bush would have been: Silent."

As a musical tribute to this entire ridiculous affair, I offer ...

Link if video does not play "Silence is Golden".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Wading Through Molasses: "Did the Real Economy, Not Counting Government, Expand in Last 20 Years?"

Posted: 08 Jan 2015 12:30 PM PST

I received an interesting question from reader Michael yesterday. Michael asked "Did the Real Economy, Not Counting Government, Expand in Last 20 Years?"

Reader Michael did not think so. Take a moment before reading further to think about how I might answer and how John Williams at Shadowstats might answer.

My Response

If the average standard of living has gone up, then we have had growth.

Better cars, more cell phones, bigger houses, better stuff in general, says we have had growth. In spite of inane inflationary policies of the Fed and corruption in politics everywhere, rising productivity over time was the enabler of growth.

However, some of that growth has been at the expense of debt (and future expansion). We have borrowed growth from the future. Those expecting a return to high growth are mistaken.

Wading Through Molasses

I asked Pater Tenebrarum at the Acting Man blog if he agreed with my response. He chimed in as follows:

Yes, I would agree with that, absolutely. However, monetary inflation has so distorted prices and made the growth look far bigger than it really was. Essentially the problem is that the market economy must constantly battle against the destructive policies of governments and central banks. It is like wading through molasses.

If you look at the actual improvements in the standards of living in more detail, most of it has to do with the computer industry in the widest sense. Even improvements in health care can be put down to increased computerization. Hi tech remains the one area that develops so quickly, the political class is too slow to regulate it to death, and the central banks cannot keep it from providing better things at lower prices, because its productivity growth is so fast it more than balances out the negative effects of money printing and credit expansion.

In virtually every other aspect, there are at most a few improvements due to the expansion in international trade, but little else.

Spotlight on Trade

To Pater's comment I would add that protectionists in Congress, countless Keynesian economists, and unions everywhere seek to label China a currency manipulator, then add tariffs.

Doing so would instantly kill any growth due to trade expansion. Also recall that Republican nominee Mitt Romney ran on that destructive platform.

Krugman "Was" Right

In 1997 Krugman wrote a brilliant article "In Praise of Cheap Labor", stating "Bad jobs at bad wages are better than no jobs at all".

I wrote about Krugman's position in Fair Trade is Unfair; In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All?

Please check it out. Krugman "was" right. However, the definition of "was" requires one to go back to 1997. Somewhere along the line Krugman acquired the "conscience of a liberal" and he has been wrong ever since.

Theater of the Absurd GDP Proposal

Let's also take a look at GDP as measured using Shadowstats CPI as the deflator. Please consider GDP, Real GDP, and Shadowstats "Theater of the Absurd" GDP.

Shadowstats GDP

click on chart for sharper image

Doug Short Writes ...
I find this "alternate Real" GDP to be interesting (in a bizarre sort of way), but I personally see no credibility in the hyper-negative GDP it produces. On the contrary, I see this chart as further evidence that the alternate CPI, despite its popular among many critics of government data, is a misguided concept.
Alternate Nonsense

Bizarre is a polite way of putting things. I would call it total nonsense. For Williams to be correct one would have to believe the economy was in a recession the vast majority of the time for the last 25 years.

Williams has a huge following, mainly by the hyperinflationist crowd. Williams himself has been predicting hyperinflation for some time.

December 12, 2010: Williams Calls for "Great Hyperinflationary Great Depression"; A Very Easy Rebuttal

May 25, 2011: Hyperinflation Nonsense in Multiple Places

All of the hyperinflation calls have been missed by a mile.

I wrote that back on May 31, 2012 so the chart is dated. But it would not look much different now, adding only another two years of recession.

Further Debunking Shadowstats CPI

On March 25 2013, Doug Short wrote Regression to Trend: Debunking the Alternate CPI.

Doug's post contains a more recent version of the above GDP chart. It also contains additional commentary well worth a look. Here is a chart and some of Doug's comments.

I'll close with one more example of why I completely reject the Alternate CPI as a valid metric. Let's consider real median household incomes since 1967, the year of the earliest Census Bureau data. Adjusted for inflation using the government's CPI, the $7,143 median household income has only risen 4% from 1967 to 2011, the latest full year of Census Bureau data. If we make the inflation adjustment using the Shadowstats Alternate CPI, the median household income has declined by 70%.

As I commented when I originally posted this household income chart last year, the Alternate CPI is a completely bizarre outlier. What this deflator is telling us translates into something like this: If we chain the 1967 median household income of $7,143 in 2011 dollars, it would have had the purchasing power back then of $166,683.

Yes, Virginia There Has Been Growth

Unless one buys the shadowstats CPI theory, there has indeed been growth. Perhaps that growth has been overstated by a little, perhaps by a lot.The fact that the central banks including the Fed have so distorted pricing mechanisms makes it hard to tell. Regardless, there are easy-to-see implications of past actions on future growth.

Future Growth Implications

Growth came in spite of central bank policies, not because of them
Growth was at the expense of mountains of debt fueled by poor monetary policies at the Fed and poor fiscal policies by governments
The existing mountain of debt at every level (government, personal, corporate) is 100% guaranteed to slow future growth

Effectively we have borrowed current growth from the future. Looking ahead, growth surprises will be predominantly on the downside for years to come.

Addendum Comments

Here's an interesting observation from reader Charlie Smith at Fort Pitt Capital Group: "The average US citizen is living 5 years longer than 35 years ago. What is more valuable than life?"

Lacy Hunt at Hoisington Investment Management responded "Some people are going to have a real hard time when the CPI prints zero or possibly even slightly negative over the first half of this year. I see that you did not forget the inflation/deflation debate at the Casey Conference last September in which you and I participated on the deflation side. Warm regards, Lacy."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Eurozone Retail PMI Sinks Again

Posted: 07 Jan 2015 11:49 PM PST

Markit reports the Eurozone Retail PMI shows further drop in sales at year-end.

Key Points:

Retail sales fall at faster rate in December
Rates of contraction accelerate in France and Italy , while growth eases in Germany
Wholesale price inflation remains close to November's recent low

Summary:

Latest PMI® data from Markit showed deteriorating trends with in the eurozone retail sector in December. Sales decreased a cross the big-three euro area economies combined, reflective of further contractions in France and Italy , as well as a growth slowdown in Germany. Adjusted for seasonal factors, the headline PMI dipped to 47.6 in December, from November's 48.9, signalling a solid and accelerated decrease in overall sales. Trade was also down sharply compared with the corresponding month of 2013, with the year-on-year rate of decline faster than in November.

Imbalances strengthen as structural problems go unsolved.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mish's Global Economic Trend Analysis

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