Wednesday, July 15, 2009

The stupidity with GDP

Our enemies have now discovered that China is increasing its growth with gross domestic product expanding by 7.9 per cent. Several papers and news stations around the world is stating this today seemingly saluting Keynesian policies. This is, of course, like so many other things they will have us believe, pure madness. Every economist with the slightest brain capacity knows how to increase GDP with 10% or more, that is not a problem. All you need to do is to borrow a shitload of money, print even more money and then force banks to loan all that money to those who knows how to spend it on useless things; the public sector. Then you hire a huge amount of unemployed and have them shuffle dirt, build things no one wants, manufacture left shoes or some other pointless tasks. And presto, GDP is up.

So far this year, China have tripled the amount of new loans, hired lots of people to the public sector, spent an obscene amount of money and forced several publicly own companies to, among other things, increase the public building ratio i.e. forcing ‘em to build parks, attractions and so forth that no one is really using.

The only thing you might accomplish with this madness is to create an atmosphere of positivism which in turn can have a slightly positive impact on the economy, but then only temporary. And when we look at Chinese figures those show us that private companies lending are minimal, at best, and direct lending to small and medium-sized companies accounted for less than 5 per cent of the total. Also, in the beginning of June the Chinese government tried to sell government bonds, they failed to sell them all which means that not only is the market suspicious towards the Chinese trustworthiness, the market also predicts an increase in inflation since the money supply is growing so rapidly. And, in the end, should we really trust numbers coming from a central planning committee whose job it is to obey the communist leaders?

But even IF these numbers are correct - not just made up – there is still some things you need to bear in mind. Firstly the Chinese are the main reason why the dollar is still holding pretty strong since they are the main buyer of USD. China is also the largest creditor to the US and the main reason why the Obamination can borrow trillions in order to squander, spend and waste. So when the dollar really start to deteriorate and it becomes more evident that the US is defaulting on its enormous debt, this will have serious impact on the Chinese economy even withstanding the fact that the American market is the most important one for Chinese manufacturers. Also, a credit boom enhancing GDP is in no way a sure way of measuring real wealth since GDP does not take into account the difference between bad investment and good investment. As stated above, increasing GDP is very easy, to increase wealth however you need to produce real value, not empty office space, demolish and rebuild certain structures or make things that cannot sell for a price of higher than that of the cost. Lastly one needs to mention water that is in short supply in China, which can be a big problem. Also worth mentioning is that the recent riots we seen in the news are in no way isolated incidents, there is a huge potential for further, bigger and more violent uprising in the future. So far the Chinese government have managed to keep the richer urban populace fairly happy, if this were to change, it can even lead to civil war.

Even if I sound quite pessimistic, China is still, in several ways, better off than most western economies since the Chinese production capacity is pretty high and the production cost low which at least means that when (if) things turn around they will be much better equipped to adapt and produce. And they still have a big currency reserve and are not nearly as insolvent as the US or totally broke as UK.

The housing bubble

This could as easily be a post about several countries around the globe but this time - again sadly - it is about the real-estate and home prices in Sweden. Despite an increase in available objects on the market and despite a deep recession, prices are going up in Sweden (even if a small decrease could be shown in June). I was hoping people being highly stupid would be less in numbers, but apparently the Swedish Central Bank’s ploy with zero interest rates and the printing machine spitting out money out of thin air is “working” in the sense that people are still doing exactly what they should not do; namely buy things.

To borrow a quotation from another blogger that also uses his synapses;

If we look at the KPIF/KPIX indexes, it feels like a decent estimate that annual price inflation in Sweden is currently running at a level between 3-5%. Also remember that there is a significant “time-lag” between low interest rates and price inflation. And while I personally believe that some of the damage may be offset by the fact that the demand for cash may be temporarily higher and that banks are somewhat reluctant to make too much new loans (this is however a VERY DANGEROUS assumption, one which central banks uses in excess to justify their interest rate manipulation)

As I have said before, the real interest rates are significantly higher. Only for the reason of keeping inflation down the Central Banks interest rates should be around 4%. Add to this that Sweden really need higher levels of saving and that the commercial banks always keep a higher interest rate than that of the central bank, we are looking at an interest rate around 7-8%. And this is today. When this crisis rages on and the interest rates are kept artificially low the percentage increases for every month that passes. In the near future, with more and more people out of a job, more and more businesses crumbling and things getting worse (which they will) somewhere down the line the interest rates need to go up, way up, over 15% and with this comes foreclosures, defaulting, bankruptcies and lots of repossessions. The Swedish government has been doing pretty well, so far, withstanding the constant bombardment from amoebas wanting further stimuli and more bail-outs, but this is about to change. No politician wanting to be elected can endure tens of thousands of demonstrators and an ever increasing cry for help. So another thing coming down the line will be more monopoly money plus more borrowing and this with a deficit that already is reaching damaging heights. This combination together with the significance of world trade for the Swedish economy will plunge my birth nation into despair and darkness.

As previously stated, and this cannot be stressed enough, the cornflake economists and the central bank monkeys are destroying the Swedish economy so when the time comes and you find that perfect tree; please make sure that the rope is hardy enough to support the proper weight…

The Increase in Piracy

Piracy in the waters off the coast of Somalia– mainly in Gulf of Aden which connects the Red Sea to the Indian Ocean – set a record of 120 attacks in 2008. But a dramatic increase in activity by mainly Somali pirates has led to almost double the number of attacks during the year's first quarter compared with the same period in 2008, this according to a report issued by the International Chamber of Commerce's International Maritime Bureau (IMB). For your information; the Gulf of Aden is one of the world's busiest trade lanes, funnelling Saudi oil, Chinese computers and Japanese cars from Asia and the Middle East to the European Union. Because of its importance, and because of the closeness to very poor desperate people, the Gulf has become the main hunting ground for these modern-day buccaneers. As the number of attacks increases, and the pirates become bolder, hijacking larger and more valuable vessels, so have the rates of shipping insurance gone up. Insurance companies have increased fees for sending a cargo shipment through the Gulf of Aden to about 6,429 euros from 643 euros a year ago. Also several shipments need to pay tens of thousands of extra euros each day in "war zone" insurance to cross the Gulf.

This is great news from one perspective because even if the dry cargo index, and similar measurements of trade, has gone down significantly the recent year, we have seen a slight increase lately, but these pirates are doing their very best to keep data like that down. Also when this depression gain momentum and protectionism grows around the globe those pirate attacks will increase even further. And what will happen when all those tens of millions of people in Africa (and elsewhere) cross the line from absolute poverty to complete starvation? I’m predicting an upswing in piracy of unprecedented volumes the coming years and it will not restrict itself to this particular area, no, we will se pirate fleets emerging around the Indian, Indonesian and, very possibly, also in the south Atlantic waters. Just as the rapid decline of prostitution around the glob (a supposedly recession-proof industry) the number of pirates and pirate attacks can be regarded as a very good measurement of how bad things really are. Much better so than government cronies assuring us everything will be fine.

If one wants to halter the depression for a while longer in waiting for the dollar to collapse, this is not really good news, but I’m having a hard time condemning these people. Sure they kill and steal and for those crimes they should be keelhauled, but still I cannot help thinking that governments everywhere commits bigger and worse crimes every day and the collective minds of the enemy class is the main reason behind the very existence of these pirates. I’m not making any excuses for these criminals, but for those out there that only condemn them, please get back to me 2 years from now when you are out of a job, you’re in foreclosure, there are riots everywhere and you need to stand in line for half a day to get a loaf of bread.