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Daily Digest 10/22 - Why China’s Economy Is Weaker Than You Think, The Real Price Of Oil

Thursday, October 22, 2015, 9:35 AM

Economy

Six reasons why China’s economy is weaker than you think (Afridev)

But as countries grow, their service sectors tend to increase as a proportion of output and employment. Rates of growth of productivity in services tend to be much lower than in manufacturing or agriculture. Hence, in any economy, growth rates are likely to slow down through changes in economic structure. There are several other reasons why China’s economic growth is set to stall.

China Capital Outflows Reach $500 Billion (Aaron M.)

The capital outflows from China have reached record levels of $500 billion in the first eight months of the current year. Following the devaluation of the yuan in August, this is putting more flesh on the bones of the reality of the Chinese devaluation. The Chinese intensified their capital outflows post-devaluation. So while some only want to focus on China selling U.S. long-term debt, they ignore the fact that the outflows far exceed the sales of dollar debt.

Confusing Inevitable with Imminent (richcabot)

But, after gold passed $1900, it took a dive. Goldbugs regarded it as an overdue correction, but the “get rich quick” punters dropped gold like a hot potato and gold remained down. Each time gold has rallied, the bullion banks have sold naked gold shorts in the futures market, then purchased the shares to be redeemed for bullion, which has then been sold in the physical market, hammering down the gold price. Now, four years after the fall from $1900, gold sits a price that makes it just low enough to prohibit the profitability of taking it out of the ground.

Silver Prices Will Rise Considerably Between 2016 And 2020 (Taki T.)

“By opposing the US and in calling the US bluff, Putin gains international respect at the expense of a lying US administration. This also strengthens Iran’s influence over Assad and Syria, plus Iraq. At the same time, it puts the Saudis and Qatar into a compromised position. The remaining question is, will the Saudis, Qatar, and the US quietly stand by while Russia takes control over the ME, or once backed into a corner, will those three come out fighting, potentially leading to WWIII?”

Japan acknowledges possible radiation casualty at Fukushima nuclear plant (richcabot)

Tokyo Electric is also facing a string of legal cases seeking compensation over the disaster.

Inside the plant, Tepco has struggled to bring the situation under control. It is estimated removing the melted fuel from the wrecked reactors and cleaning up the site will cost tens of billions of dollars and take decades to complete.

Retired US Navy captain: The centerpiece of the Navy's future doubles down on a 20-year-old strategic mistake (Time2Help)

"American power and permissive environments were assumed following the end of the Cold War, but the rise of new powers, including China and its pursuit of anti-access/area-denial (A2/AD) strategies and capabilities to include the carrier-killing 1,000 nautical mile (nm) range Dong Feng-21 anti-ship ballistic missile, now threatens to push the Navy back beyond the range of its carrier air wings," Hendrix notes.

Economics=Art Of Deception Vs. Demographics=Simple (Yet Ugly) Reality (Chris H.)

Population growth is pretty much the nexus of all GROWTH. Funny we hear so little about demographics and yet so much about growth?!? Consider, the below chart shows the quantity of global population growth (yearly average by decade) from 1850 to 2050 vs. total global population (all population data and estimates are via OECD.stat). Annual global population growth peaked in the 1980's and by 2050 is set to decelerate back to the same gross growth as per the 1950's despite a population base almost three times larger than that of the 1950's.

The Real Price of Oil (richcabot)

The next adjustment is more subtle and thus often neglected. We must account for crude oil’s declining importance in all Western economies. This measure, usually called the oil intensity of the economy, traces oil used per unit of gross domestic product, and it is calculated by dividing the total national oil consumption by GDP expressed in constant monies. Before the first oil price rise of 1973–74, oil intensity had been diminishing rather slowly; afterward, its decline accelerated.

When will the Bank Bubble Burst? (richcabot)

Just take Deutsche Bank, their derivatives position is officially $75 trillion. The real figure is probably over $100 trillion but let us accept the $75T. DB’s equity is $83B. This means that just 0.1% loss on the gross derivatives position is enough for DB to go under. It is virtually guaranteed that any loss on their derivatives would exceed 0.1% of gross value. DB is also too big for Germany. DB’s derivatives position is 24 x German GDP and equal to global GDP. Clearly too big to save and too big for the country and the world! But the Bundesbank and the ECB will try and thus create a new hyperinflationary Weimar Republic for Germany.

Letters from Survivors in Ukraine Part 2 (pinecarr)

The second time, the line had grown to 700 people. I know this because people wrote their queue number on their hands. My neighbor had a seizure because of the heat and I took him home. We eventually got the humanitarian parcels, three days later. I don't know how many people received these parcels, and how many times. I've heard that some people had permanent coupons. At some point I realized that this humanitarian aid wasn't worth the calories spent on receiving it and I stopped thinking about it. I held two jobs in the course of the siege. Then autumn came. Refugees started returning. Hospitals and schools reopened; many businesses resumed their activities.

A New Era For Canadian Oil And Gas, For Better Or Worse (Evan K.)

The first nuclear reactor to come online in the U.S. since 1996 could begin operations before the end of the year. The Tennessee Valley Authority began construction on the Watts Bar-2 reactor in 1972, but construction was suspended after problems arose during construction. Construction then resumed in 2007. The 1,150-MW reactor has finally reached completion, and is awaiting an operating license from the Nuclear Regulatory Commission, which Platts says could come within a few weeks. Despite the hype around a potential “nuclear renaissance” in recent years, the Watts Bar reactor will be the first to come online in two decades.

Most earth-like worlds have yet to be born, according to theoretical study (Arthur Robey)

A big advantage to our civilization arising early in the evolution of the universe is our being able to use powerful telescopes like Hubble to trace our lineage from the big bang through the early evolution of galaxies. The observational evidence for the big bang and cosmic evolution, encoded in light and other electromagnetic radiation, will be all but erased away 1 trillion years from now due to the runaway expansion of space. Any far-future civilizations that might arise will be largely clueless as to how or if the universe began and evolved.

Chemical exposure linked to rising diabetes, obesity risk (pinecarr)

"The evidence is more definitive than ever before - EDCs disrupt hormones in a manner that harms human health," said Andrea C. Gore, Professor and Vacek Chair of Pharmacology at the University of Texas at Austin and chair of the task force that developed the statement. "Hundreds of studies are pointing to the same conclusion, whether they are long-term epidemiological studies in human, basic research in animals and cells, or research into groups of people with known occupational exposure to specific chemicals."

Gold & Silver

Click to read the PM Daily Market Commentary: 10/21/15

Provided daily by the Peak Prosperity Gold & Silver Group

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

7 Comments

saxplayer00o1's picture
saxplayer00o1
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Posts: 4066
More stimulus

UPDATE 3-US Treasury postpones debt auction due to borrowing limit

Reuters-9 minutes ago
The federal debt started scraping up against the $18 trillion legal limit in March. Since then, the Treasury has employed emergency accounting measures like ...

Dow sees triple-digit gain as ECB hints at more stimulus

MarketWatch-1 minute ago
The main indexes also got a boost from the European Central Bank's talk of ... from European Central Bank President Mario Draghi, who said the central bank is ...

Euro Drops as Draghi Gives Investors the QE Hints They Wanted

Bloomberg-58 minutes ago
The euro fell to a two-week low against the dollar after European Central Bank President Mario Draghi said policy makers will reexamine the degree of ...

ECB's Draghi Sees Downside Risks to Growth Outlook

Bloomberg-1 hour ago
Possible repercussions from emerging markets signal “downside risks to the outlook for growth and inflation,” European Central Bank President Mario Draghi ...

Brazil's Swap Rates Drop After Central Bank's Dovish Statement

Bloomberg-49 minutes ago
Brazil's swap rates fell to the lowest level in five weeks after the central bank backed away from a commitment to meet its inflation goal in 2016. While the central ...

Moody's Says Japan QQE Unlikely to Meet Target in Timeframe

Bloomberg-4 hours ago
The central bank last October expanded its stimulus program that Governor Haruhiko Kuroda introduced in April 2013 in a bid to push up inflation to its target.

Japan's Life Insurers Facing Hurdles Wherever They Seek Returns

Bloomberg-4 hours ago
... as Bank of Japan debt buying depresses local yields, the yen shows signs of ... Japan's life and non-life insurers bought a combined net 1.76 trillion yen in ...

US shale producers have $150bn in debt – Rosneft CEO

RT-1 minute ago
"The total debt of only 25 companies engaged in the extraction of shale oil is about $150 billion," said Sechin speaking at the Eurasian Forum in Verona, Italy, ...

Puerto Rico faces humanitarian crisis without federal action: Treasury

Reuters-49 minutes ago
Puerto Rico, a U.S. territory home to 3.5 million, is buckling under $72 billion in debt and a 45 percent poverty rate. With financial creditors resisting reductions to ...

UPDATE 2-Soaring asylum numbers force Sweden to cut costs ...

Reuters-3 hours ago
The government had set aside around 40 billion crowns - or 4 percent of its ... the most solid in Europe and government debt, at around 36 percent of GDP, ...

European Utilities Face Record Refinancing as Margins Slide

Bloomberg-7 hours ago
Europe's utilities have 27 billion euros ($31 billion) of benchmark bonds in euros ... European power companies' net debt as a ratio of earnings has almost ...

Taylor Says Pa. Budget Standoff Will Last For Weeks

Philadelphia Public Record-17 minutes ago
With the Commonwealth facing a budget deficit of over $2 billion, Taylor asserted there is “no room for billion-dollar cuts.” Education and welfare have already ...

China continues to see forex settlement deficit

Xinhua-5 hours ago
Chinese banks sold 232.1 billion U.S. dollars' worth of foreign currencies to ... The forex settlement deficit came in at 301.5 billion dollars in the first three ...

US public pension funds slowly wake up to risk

Reuters-2 hours ago
The average state pension fund has only around 80 percent of the assets it ... back on risk within U.S. public pension sector may come from the California Public ...
Arthur Robey's picture
Arthur Robey
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Posts: 3936
The Real Price of oil.

This measure, usually called the oil intensity of the economy, traces oil used per unit of gross domestic product, and it is calculated by dividing the total national oil consumption by GDP expressed in constant monies. Before the first oil price rise of 1973–74, oil intensity had been diminishing rather slowly; afterward, its decline accelerated.

I wonder if this is due to the rise of the internet. Shopping can be done from the couch at home is an example of an economic efficiency. 

http://spectrum.ieee.org/energy/fossil-fuels/the-real-price-of-oil

cmartenson's picture
cmartenson
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Posts: 5570
I have a different idea
Arthur Robey wrote:

This measure, usually called the oil intensity of the economy, traces oil used per unit of gross domestic product, and it is calculated by dividing the total national oil consumption by GDP expressed in constant monies. Before the first oil price rise of 1973–74, oil intensity had been diminishing rather slowly; afterward, its decline accelerated.

I wonder if this is due to the rise of the internet. Shopping can be done from the couch at home is an example of an economic efficiency. 

http://spectrum.ieee.org/energy/fossil-fuels/the-real-price-of-oil

Well, since 1970, the economy as measured by GDP has been including more and more hokey stuff in there. Like imputations and hedonics.

For instance, just looking at imputations, in the last year for which the BEA has released full records, the US economy had over $430 billion dollars of "value" added to it via the miracle of free banking services.  

The idea in capturing this was that checking accounts have value, and people not only did not pay for those, but even received interest.  So the BEA, in its infinite wisdom, said "Hay! That has value, we should count that!!"

Here's the imputation data just for the banking sector:

(Source)

Well, if the BEA decided that was 'worth' $1 trillion, then the 'oil intensity' of the US GDP would plummet even further.

Just for giggles, let's note that in 2014 nobody was getting any interest and the banks began to really gouge their 'customers' for fees and whatnot several years before that.  Eyeballing that table, I do not see anything but steady if not aggressive growth in the "value" of those imputed services offered by the financial sector.

Even worse from a double counting perspective, those very same fees that were not subtracted from the imputation tables were definitely counted on the revenue side of the equation for the banks and therefore contributed to GDP.

Taken all together the imputations for 2014 were $2.8 trillion meaning that they added up to 16% of the US GDP.  Don't forget, we don't know the value of hedonic adjustment because the BLS does not release those until quite a few years later...but if they are in line, those might be another 15% to 20% of GDP.

So when we say the oil intensity of the economy is dropping, that may be true to some legitimate extent, but it's more likely that the GDP is being artificially inflated a larger extent.

 

 

reddgreen's picture
reddgreen
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GDP joke

As big a joke, or tragedy, depending on how you view things, is including rent that you would have paid yourself, if you rented the house that you are now paying a mortgage on, in the GDP.     Without these ridiculous absolute garbage adjustments,  the GDP numbers would match what we all have known for decades: the USA has been looted, the manufacturing sector dismantled and sprinkled around the globe wherever they allow slave labor, tax revenue has collapsed accordingly, and the whole thing papered over, at least in government reports, by fudging the numbers.

KugsCheese's picture
KugsCheese
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Treasury Postpones Debt Auction

Once the new debt ceiling is passed and deferred payments brought onto books what will $18T debt go to immediately?   Was the ~500B deficit recently touted not accurate due to accounting gimmicks surrounding the debt limit debate?

TechGuy's picture
TechGuy
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Posts: 367
US GDP

Also US GDP included all gov't consumption (Fed, State, Local). Most of which does not contribute to economic growth, since it all paid from the private,productive (non-gov't) part of the economy. If exclude gov't spending the US GDP probably would be half or less than the "official" gov't estimate. 

Its probably even much worse if non-productive "service" jobs are excluded too (bars, retail clerks, resturants, accounting services, legal, etc). 

 

davefairtex's picture
davefairtex
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Posts: 5072
nonproductive service jobs!

Its probably even much worse if non-productive "service" jobs are excluded too (bars, retail clerks, resturants, accounting services, legal, etc).

Whoa there Nellie.  Saying that accounting people are non-productive is just wrong.  While its not my field, I've dabbled, and I have to tell you, an honest accounting person is the only individual standing between the business checking account and rampant peculation by all and sundry.

And even if you don't consider theft and taxes, good financial statements are required to understand how your business is doing, and as a famous dictator once said, "Trust, but VERIFY."  So - no - accounting services are NOT unproductive.  They are the financial cops on the beat making sure you are not being stolen from.

Unless of course you just want to assume everyone is a good person and wouldn't dream of submitting an invoice from a non-existent vendor, or demanding reimbursement for an illigitimate expense.

The average size of a small business embezzlement event is $120,000.

There will come a time when the "productive part" of the economy is a bunch of robots in a factory.  Is the staff of 5 overseeing these robots to be credited with the entire production of the factory?

Sorry for the over-reaction.  An honest financial crew is a critical requirement for a well-run small business.  Kind of like good plumbing is a requirement for a clean house.  You just try having a clean house if the plumbing stops working.

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