Brazil faces forecasts of slow growth

UPI
November 1, 2011

Brazilian government economic planners have been served the first warning this year that the Latin American country’s commodities-fueled economy may be slowing.

Data released by the state development bank BNDES indicated the sluggish growth wasn’t only a reality but one that had gained momentum in recent months.

Reports of the continent’s largest economy slowing contrast with projections that continue to indicate healthy activity in most sectors of Brazilian economy. The slowdown prognosis is based on lower lending figures, which indicate momentum in economic activity, the data showed.

The bank said its loan disbursements in 2011 will miss their initial target for the year, reflecting a shortfall of $2.95 billion-$4.14 billion. The estimated total loan disbursements for the year are likely to be no more than $83 billion against estimates of up to $87 billion.

The drop is partly the result of corporate borrowers changing their minds about making new credit requests but it represents the first annual decline in the figure since 2008, when Brazil was battling the global economic downturn.

The financing slump comes amid forecasts that Brazil’s economic growth this year may be less than half that in 2010. Last year’s economic growth, recorded at 7.5 percent, was the fastest in 24 years of economic activity in Brazil and attracted investors from all over the world.

At least part of the drop in borrowing from BNDES stems from conservatism among Brazilian corporate entities that have been buffeted by investor speculation and worries over the possible ramifications of the eurozone crisis.

Talks on building new business bridges with the European Union have been stalled for more than a year and discussions on reaching a free trade deal with Europe within the framework of Latin America’s Mercosur trade bloc have been inconclusive.

Officials say the eurozone crisis may encourage European negotiators to drop their objections to Mercosur, which is seen by the EU agriculture sector as a potential threat. EU analysts have said a deal with Mercosur will help EU to forge new trade links and find new sources of revenue at a time of adversity.

Several Mercosur member countries are doing well and Brazil in particular has a vast surplus that promises EU exporters a potential bonanza if a trade deal is realized.

Mercosur member countries are Argentina, Brazil, Paraguay and Uruguay as full members, Venezuela as a full member awaiting confirmation and Bolivia, Chile, Colombia, Ecuador and Peru as associates.

Analysts said the news of a potential economic slowdown in Brazil will likely cause a ripple effect in the rest of the Mercosur region, which has a gross domestic product of $2.895 trillion.

Australia to have Weak Economic Growth

AAP
August 17, 2011

SIGNS that Australia is headed for its weakest patch of economic growth in two years are increasing, driven by consumer and business caution, higher savings rates, rising unemployment and a weak building sector.

The Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was at 1.6 per cent in June, below its long-term trend of three per cent.

It was the second month in the row that the index has printed at 1.6 per cent, after slumping to the low level in May from 2.7 per cent in April.

Westpac chief economist Bill Evans said weak growth in consumer spending, higher savings rates and weakness in residential and non-residential building would contribute to below trend growth for the rest of 2011.

Westpac expected an annualised growth rate of 2.5 per cent in the second half of 2011, he said.

Mining investment would remain strong, but there was likely to be some correction to the investment plans of firms servicing the non-mining sectors.

“The growth rate in the index has steadily fallen from its peak in this cycle of 9.5 per cent in March 2010,” Mr Evans said.

“This is now the lowest growth rate for the index since August 2009.”

Westpac expected unemployment to rise to 5.5 per cent in the first half of 2012, Mr Evans said.

“With governments consolidating fiscally and households and firms deleveraging, and relative prices changing, economic activity is being diverted away from services and manufacturing to mining and mining construction, which are not intensive users of labour,” he said.

The growth rate of the Leading Index has slowed over the past six months, from 3.3 per cent to 1.6 per cent.

Mr Evans said key downside factors were a fall in real money supply (down 0.7 per cent), dwelling approvals (-3.5 per cent) and the S&P All Ordinaries Index (-2.1 per cent).

Growth in the Coincident Index, which measures current economic activity, was 0.1 per cent, below its long-term trend of 2.8 per cent.

That was due to a slump in retail trade, the slowdown in employment and the disruption to production in the first quarter of 2011 due to flooding in Queensland.

Mr Evans said evidence was emerging to support his view that the Reserve Bank of Australia (RBA) would cut rates by 25 basis points by the end of the year.

However, he said, further evidence that inflation risks had receded would be necessary before the RBA made a case to cut rates.

First Traitor who wants out: Tim Geithner considers leaving U.S. Treasury

Bloomberg
June 30, 2011

Treasury Secretary Timothy F. Geithner has signaled to White House officials that he’s considering leaving the administration after President Barack Obama reaches an agreement with Congress to raise the federal debt limit, according to three people familiar with the matter.

Geithner said speculation about his departure was being driven by his decision to commute to New York so his son can finish his final year of high school there.

“I live for this work,” he said at the Clinton Global Initiative in Chicago. “It’s the only thing I’ve ever done. I believe in it. We have a lot of challenges as a country. I’m going to be doing it for the foreseeable future.”

Geithner hasn’t made a final decision and won’t do so until the debt-ceiling issue has been resolved, according to one of the people. All spoke on condition of anonymity to talk about private discussions.

The Treasury secretary has said the U.S. risks defaulting on its obligations if Congress doesn’t raise the $14.3 trillion debt ceiling by Aug. 2. The administration and Republicans in Congress are at an impasse in negotiations to raise the limit, which is tied to efforts to cut the nation’s long-term deficit.

Moody’s Investors Service said on June 2 that it expects to place the U.S. government’s Aaa credit rating under review for a possible downgrade if there’s no progress on the debt limit by mid-July. Fitch Ratings said June 21 it would place the U.S. on a negative rating watch if no action is taken by Aug. 2.

Completing the Turnover

An exit by Geithner would complete the turnover in Obama’s original economic team, with Council of Economic Advisers Chairman Austan Goolsbee scheduled to leave in early August to return to the University of Chicago.

That would leave Obama with two key posts to fill as Republicans are seeking to turn the 2012 election into a referendum on Obama’s handling of the economy and as the recovery is slowing. The unemployment rate rose to 9.1 percent in May, according to the Labor Department, and the economy grew at a 1.9 percent pace in the first quarter, according to Commerce Department figures released June 24.

Jen Psaki, a White House spokeswoman, declined to comment.

“Geithner leaving may raise the level of uncertainty for the direction of economic policy, and that is never a positive thing for the markets and the recovery,” said Christopher Sullivan, who oversees $1.7 billion as chief investment officer at the United Nations Federal Credit Union in New York.

‘Shock Value’

Still, he said, it wouldn’t have too much “shock value,” especially if Geithner remains at Treasury until the debt ceiling is settled, “which is the most pressing concern anyone would have.”

Treasuries fell for a fourth day as stocks rose and a measure of U.S. business activity improved. The yield on the 10- year note climbed five basis points, or 0.05 percentage point, to 3.16 percent at 5:14 p.m. in New York.

Investors may be more interested in who would come after Geithner.

“The question in cases like this is always who will be the replacement,” said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee. “You can’t judge if this is good or bad for the market until you see who follows.”

The market was “comfortable” with Geithner because he was “a visible player in trying to blunt the crisis,” Mueller said.

Read Full Article…

The Cycle of Debt Deflation

Before It’s News

One of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.” In fact, the US economy is in a downward spiral of debt deflation despite the bold actions of the federal government and of the US Federal Reserve taken in response to the financial crisis that began in 2008 and the associated recession. Although the vicious circle of debt deflation is not widely recognized, precisely what von Mises described is happening before our eyes.

A variety of positive economic data has been reported in recent months. Retail sales rose 0.4% in April 2010 as consumer spending rose and the US gross domestic product (GDP) grew at a rate of 3%.  In May 2010, home sales rose to a five-month high and consumer confidence rose 17% (from 57.7 to 63.3). Industrial production rose 0.8% and durable goods orders rose 2.9%, more than had been forecast. However, the modest gains reported represent the continuing adaptation of economic activity at dramatically lower levels compared to the pre-recession period and most of the reported gains have been substantially manufactured by massive government deficit spending.

Despite the widely reported green shoots, in May, the unemployment rate rose to 9.9% while paychecks in the private sector shrank to historic lows as a percentage of personal income, and personal bankruptcies rose. Roughly 14% of US mortgages are delinquent or in foreclosure, credit card defaults are rising and consumer spending hit 7 month lows. To make matters worse, the reported increase in consumer credit, in fact, points to a further deterioration because consumers appear to be borrowing to service existing debt. Outside of the federal government, which is borrowing at record levels and expanding as a percentage of GDP, and outside of the bailed out financial sector, debt deflation has continued unabated since 2008.

Money Supply vs. Debt Service

A contraction of the broad money supply is taking place because the influx of money into the US economy, i.e., lending to consumers and non financial businesses, has fallen below the rate at which money is flowing out of general circulation as a function of debt service (interest and principle payments on existing debt), thus a net drain of money from the broad US economy is taking place. As a result, additional borrowing, as consumer spending falls, appears to be servicing existing debt in a pattern that is clearly unsustainable and that signals a further rise in debt defaults in coming months.
M3
The estimate of the broad money supply (the Federal Reserve’s M3 monetary aggregate) is crashing and the Federal Reserve’s M1 Money Multiplier, a measure of how much new money is created through lending activity, fell off of a cliff in 2008, and remains practically flat-lined.
MULT
Chart courtesy of the Federal Reserve Bank of St. Louis
The contraction of the broad money supply points to a potential slowing of economic activity and indicates that consumers and non financial businesses will be less able to service existing debt. Despite easing somewhat in March 2010, credit card losses are expected to remain near 10% over the next year and mortgage delinquencies, are currently at a record highs, and these dismal predictions implicitly assume a stable or growing money supply.

A tsunami of eventual mortgage defaults seems to be building and loan modifications have been a failure thus far. There have been only a small number of permanent loan modifications (295,348) under the Home Affordable Modification Program (HAMP) in 2009, out of 3.3 million eligible (60 days delinquent) loans and more than half of modified loans default.

Mortgage Delinquencies and Foreclosures
Chart courtesy of Calculated Risk
Although it has been reported that American consumers are saving at a rate of 3.4%, the contraction of the broad money supply suggests savings liquidation. Given a contracting money supply, ongoing debt defaults and declining consumer spending, the increase in non-mortgage consumer loans indicates that consumers are borrowing where possible to consolidate debts, cover debt service, or borrowing to continue operating financially as their total debt grows, thus as they approach insolvency.
CONSUMER
Chart courtesy of the Federal Reserve Bank of St. Louis
The increase in non-mortgage consumer loans has not prevented an overall decline in total household debt attributed to ongoing deleveraging by consumers. While deleveraging (paying down debt) has been interpreted as caution on the part of consumers, or as low consumer confidence, the decline in outstanding credit reflects a reduced ability to borrow, i.e., to service additional debt. This suggests that the recovery of the US economy may be illusory and that the economy is likely to contract further in coming months.
CMDEBT
Chart courtesy of the Federal Reserve Bank of St. Louis
Commercial borrowing has declined more sharply than household debt suggesting that the nominal return to growth estimated at 3% has not been matched by debt financed expansion in the private sector.
BUSLOANS
Chart courtesy of the Federal Reserve Bank of St. Louis
The broad US money supply is no longer being maintained or expanded by normal lending activity. If federal government deficit spending ($1.5 trillion annually), debt monetization and emergency actions by the Federal Reserve (totaling an estimated $1.5 trillion since 2008) to recapitalize banks are considered separately, there remains a net drain effect on the broad money supply. The scarcity of money hampers economic activity, i.e., money is less available for investment, and directly exacerbates debt defaults as consumers and businesses experience cash shortfalls, while at the same time being less able to borrow. Since unemployment is a key indicator of recession, then if the US economy were contracting, it would be evident in unemployment statistics.

Structural Unemployment

Unemployment and labor force data suggest that the US labor market is in a structural decline, i.e., millions of jobs have been and are being permanently eliminated, perhaps as a long term consequence of off-shoring, outsourcing to other countries and the ongoing de-industrialization of the United States. However, the immediate meaning of the term “structural” has to with the fact that jobs created or sustained during the unprecedented expansion of debt leading to the financial crisis that began in 2008, e.g., a substantial portion of service sector jobs created in the past two decades now appear not to be viable outside of a credit expansion.

Officially, the US unemployment rate rose to 9.9% in April 2010, which represents the percentage of workers claiming unemployment benefits. However, the total number of unemployed or underemployed persons, including so-called “discouraged workers” (Bureau of Labor Statistics U-6), rose to 17.1%Using the same methods that the BLS had used prior to the Clinton administration, U-6 would be approximately 22%, rather than the official 17.1% statistic.

U-6 Unemployment
With official U-6 unemployment of 17.1% and a workforce of 154.1 million there are roughly 26,197,000 people officially out of work. Using the pre-Clinton U-6 unemployment calculation of approximately 22%, there would be 33.9 million unemployed. If the average US household consists of 2.6 persons and if 33% of the unemployed are sole wage earners, then 55.5 million US citizens currently have no means of financial support (17.9% of the population).
Unemployment by Duration
Chart courtesy of Calculated Risk
While it has been reported that the labor force is shrinking, the characterization of workers permanently exiting the workforce by choice may be inaccurate. While a shrinking workforce could reflect demographic changes, the rate of change suggests that tens of millions of Americans are simply unemployed.
EMRATIO
Chart courtesy of the Federal Reserve Bank of St. Louis
Setting aside the question of whether or not those “not in the workforce” are, in fact, permanently unemployed, the workforce, as a percentage of the total US population, is currently at 1970s levels. Since many more households today depend on two incomes to meet their obligations, compared to the 1970s, a marked drop in the percentage of the population in the workforce points to a decline in the labor market more significant than official unemployment statistics suggest. What is more important, however, is that structural unemployment suggests structural government deficits, e.g., unemployment benefits, welfare, food stamps, etc. Since more than 2/3 of US GDP (roughly 70%) consists of consumer spending, a sustainable recovery from recession seems improbable if unemployment is worsening or if the labor force is in a structural decline, since that would imply unsustainable government deficits, whether or not they are masked by nominal GDP gains thanks to economic stimulus measures.

Government and GDP Growth

The US federal government is a growing portion of GDP, thus reported GDP growth is largely a byproduct of government deficit spending and stimulus measures, i.e., reported GDP growth is unsustainable. Total government spending at the local, state and federal levels accounts for as much as 45% of GDP, thus nominal gains would be expected when government deficit spending increases. According to some measures, reported gains in GDP are a byproduct of relatively new statistical methods and, using earlier methods of calculation, GDP remains negative.
GDP
Government borrowing and spending may have offset declines in the private sector but only to a degree and only temporarily. The resulting growth in US public debt has an eventual mathematical limit: insolvency. Of course, the actual limit to US borrowing remains unknown. The continuing solvency of the US depends on the ability and willingness of governments, banks and investors around the world to lend to the US, which in turn depends on the tolerance of lenders for the US government’s profligacy and money printing by the Federal Reserve, e.g., quantitative easing and exchanging new cash for worthless bank assets. US Treasury bond auctions will fail if lenders conclude that a sufficiently large portion of their investment will be diluted into oblivion by proverbial money printing. In that event, the US dollar will surely plummet, despite deflationary pressures within the domestic US economy, and the cost of foreign goods, e.g., oil, will rise causing high inflation or triggering hyperinflation.
GFDEBTN
Chart courtesy of the Federal Reserve Bank of St. Louis
According to the Bank for International Settlements (BIS), the federal budget deficit increased from 3.1% of GDP in 2007 to 9.2% in 2010.  Rather than being the result of one-time expenses, such as temporary stimulus measures, much of the deficit represents permanent increases in government spending, e.g., due to the growing number of federal employees. If increased government spending is removed, GDP appears to be declining significantly.
GDP Minus Government Deficit Spending
Chart courtesy of Karl Denninger
Of course, sustainability has more to do with total debt than with deficit spending because a deficit assumes that there is an underlying capacity to service additional debt.

Unsustainable Debt

While asset prices have declined, e.g., real estate and equities, debt levels have remained high due to the federal government’s policy of preserving bank balance sheets, which had ballooned prior to the financial crisis to the point that overall debt in the US economy reached unsustainable levels.
Total Debt to GDP
Chart courtesy of Karl Denninger
The absolute debt to GDP ratio of the US economy peaked in 2007 when debt levels exceeded the ability of the economy to service debt from income based on production, even at low interest rates. Although US GDP began to decline prior to the advent of the global financial crisis, debt coverage had been in decline approximately since the 1970s, coincidentally, around the time that the US dollar was decoupled from gold.
Declining Debt Coverage from 1971 on
Chart courtesy of Karl Denninger
Government deficit spending cannot correct the situation because, for every dollar of new borrowing, the gain in GDP is negligible and some have argued that the US economy has passed the point of “debt saturation.”
Debt Saturation
Chart courtesy of Nathan A. Martin
In a growing economy, additional debt can result in a net gain in GDP because the money supply grows and economic activity is stimulated by transactions that flow through the economy as a result. The debt saturation hypothesis is that, as debt levels rise, additional debt has less impact on GDP until a point is reached where new debt causes GDP to decline, i.e., the capacity of the economy to service debt has been exceeded and, not only is it impossible for the economy to grow at a rate sufficient to service existing debt (since interest compounds), but economic activity actually declines further as a function of additional debt.

A Downward Spiral

The process of debt deflation is straightforward. New lending at levels that would maintain or expand the broad money supply is impossible for two reasons: (1) asset values and incomes have fallen and millions remain unemployed; and (2) debt levels remain excessive compared to GDP, i.e., real economic activity (outside of the government and financial services industry) cannot service additional debt. The inability to lend, actually the result of prior excess lending, results in a net drain of money from the economy. The drain effect, in turn, leads to further defaults as cash strapped consumers and businesses fail to service existing debt, and as debt defaults impact bank balance sheets, putting a damper on new lending and completing the cycle of debt deflation.

Keynesian economic policies, i.e., government deficit spending, are irrelevant vis-à-vis excessive debt levels in the economy and bailing out banks is not a solution since it cannot stop the deterioration of their balance sheets. The process is self-perpetuating and cannot be stopped by any government or monetary policy because it is not a matter of policy, but rather one of mathematics.

Since the presence of excess debt (beyond what can be supported by a stable GDP, or by sustainable GDP growth) impacts the broad money supply, efforts to preserve bank balance sheets, i.e., to keep otherwise bad loans on the books of banks at full value, will ultimately cause bank balance sheets to deteriorate more than they would have otherwise. The fact that US banks issued trillions in bad loans cannot be corrected by changing accounting rules, nor can the consequences be avoided by government deficit spending or by unlimited bailouts, and the problem cannot be papered over by dropping freshly printed money from helicopters flying over Wall Street. The major problems facing the US economy today—a tsunami or debt defaults, structural unemployment, massive government budget deficits, a contraction of the broad money supply outside of the federal government and the financial system, and a lack of sustainable growth—cannot be addressed as long as excess debt levels are maintained. As von Mises clearly understood, sound economic conditions cannot be restored unless and until the excess debt, which resulted from a boom brought about by credit expansion, is purged from the system. The alternative, and the current policy of the United States, is a downward spiral into a bottomless economic abyss.

BP’s Top Kill Procedure fails as Coast Guard Blocks Media Access

Natural News

BP officials have announced today that the “top kill” effort to stop the Gulf oil leak has failed. Unanticipated problems doomed the project, which involved trying to pump tens of thousands of gallons of mud, shredded rubber tires and other “junk” into the hole to try to halt the outflow of oil.

At 6pm Saturday evening, BP officials announced the “top kill” effort had failed and now they were moving on to another plan (more below).

I am on site at the Gulf Coast right now, and while I haven’t reached the areas where oil is washing up on the beaches, I’m learning some interesting information nonetheless. In particular, finding a hotel room anywhere near New Orleans has become virtually impossible, as BP has rented out virtually every available hotel room from St. Charles, Louisiana all the way to Pensacola, Florida. (I am currently staying in a fleabag hotel that miraculously has internet access…)

But it raises the question: Where are all these people? I haven’t seen a single BP person anywhere, and I was out on some beaches today filming editorial segments for NaturalNews. I did see some small watercraft laying out protective barriers, but I didn’t see any BP people anywhere.

I’ll keep you posted on what we find tomorrow as we approach the beaches to the East of New Orleans.

Expect more oil for the next 10 weeks

Now that the top kill effort has failed, it means oil will keep spewing into the Gulf of Mexico until at least August. That’s when two “pressure release” wells are expected to be completed. The purpose of these two wells is to siphon off the oil from underneath the ocean bed, thereby releasing the pressure that’s currently pushing crude oil out of the existing hole under the doomed Deepwater Horizon rig.

This “plan C” effort remains extremely risky, of course. There’s no guarantee it will work at all. And if it fails, this “volcano of oil” could continue to pollute the Earth’s oceans for years. This could, in fact, be the global killer event I warned about in an earlier story about this BP oil spill. (http://www.naturalnews.com/028805_G…)

We could be looking at a global-scale environmental catastrophe that destroys virtually all marine life in the Gulf of Mexico and takes a century to fully recover. It’s really that bad. If they can’t stop this volcano of oil in the next week, we could be looking at the single most destructive environmental catastrophe ever to strike our planet since the asteroid that wiped out the dinosaurs.

Get ready for more chemicals

In the mean time, now that the top kill effort has failed, BP has announced it is resuming the spraying of chemical dispersants into the massive oil plumes that remain deep under the surface of the Gulf of Mexico water. This means more chemicals that will kill more forms of marine life throughout the Gulf.

But it’s not just aquatic life that’s being threatened by these chemicals: BP workers are increasingly being sent to the hospital complaining of symptoms like vomiting, dizziness, difficult breathing and others. The obvious cause of such symptoms is the huge amount of crude oil bubbling up to the surface (some of which evaporates into the air) along with the massive injection of chemical dispersants into the waters (some of which also evaporates). CNN is reporting that BP claims it is monitoring air quality, but so far BP has not gone public with any air quality test results.

None of the cleanup workers have been outfitted with chemical masks that might protect them from the volatile chemicals now present in the Gulf waters. Yet CNN is reporting that the warning label on the chemical product made by NALCO states: “Avoid breathing vapor.”

The EPA, meanwhile, remains silent on this whole issue. Remember: It is the EPA that ordered BP to stop using its selected brand of chemical dispersant, but BP utterly ignored the EPA and continues to dump that very same chemical into the Gulf of Mexico right now.

A chemical attack on America

What we are watching here, folks, is very nearly a chemical attack on America by BP and the oil industry. It’s hard to say what’s worse: The oil or the chemical dispersants. In fact, no one knows the answer to that question, and it can’t even be studied by scientists because the disaster keeps growing by the day.

This is one environmental catastrophe that just keeps getting worse, and the cost to the marine ecosystem is incalculable. And that’s not to even mention the economic cost to the region and all the people who depend on life in the Gulf of Mexico for their own livelihoods. Their lives are now being destroyed by this oil drilling catastrophe.

If there’s one lesson that comes from all this, it is a reminder of the immense value Mother Nature provides us each and every day at no charge. The VALUE of a healthy ocean is incalculable. And the COST of killing it may be more than what human civilization can bear.

I suppose this resolves the whole question of what’s more important: The environment or the economy? As we’re rudely discovering today, the economy cannot exist without protecting the environment first.