Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Economists are Still Getting it Wrong on the Recession

Economics / Recession 2008 - 2010 Oct 27, 2008 - 02:03 PM GMT

By: Gerard_Jackson

Economics Best Financial Markets Analysis ArticleThe recession is deepening and our economic commentariat still cannot get it right. Access Economics economist Chris Richardson is a classic. He figures governments and central banks "just don't have the dollars" to turn things around. The one thing governments and central banks are never short of is money. They can create as much money as they like. Only the threat of an outbreak of massive inflation stops them. In any event, the problem is not one of insufficient funds.

Never mind, Pollyanna Richardson reckons Australia really has nothing to worry about so long as China keeps going. It's only "if China stops being fine, then Australia runs the risk of being buggered ... there is a risk China won't be fine." He then claims that Australia's economic slowdown was largely the fault of the decline in the building industry and a slackening of consumer spending.

And it gets much, much worse. Heather Ridout , Chief Executive, Australian Industry Group issued a media release in which she wheeled out the predictable fallacy that consumption spending is about 60 per cent of economic activity. This was followed by the equally appalling fallacy that Australia was "vulnerable to "the paradox of thrift'". And what is her solution?

The Government should be ready to take up the slack in the economy as business investment and consumer spending retreats. It should prepare to bring forward key investment projects.

The woman is clearly ignorant of what is really happening and what needs to be done. Moreover, she cannot even follow the Australian Industry Group's Performance Manufacturing Index which reported for September that "Manufacturing activity fell for a fourth successive month". This is as a clear an indication of an impending recession as one can get.

Let me make the logic of the AIG's own manufacturing statistics so clear that even Richardson and Ridout can grasp it. If consumption was really responsible for our economic slowdown then it is obvious that firms at the lowest stages of production, those closest to consumption, would have been the first to feel the impact of any slackening in consumer spending.

Instead we find that the higher stages of production -- as predicted by Austrian economic analysis -- started to contract before any fall off in consumer spending. In short, it is not consumer spending that is the driving force in the economy but aggregate business spending. The following Reserve Bank chart makes this fact abundantly clear.

If business spending were disaggregated we would also find that changes in spending in the higher stages of manufacturing becomes the real indicator of whether the economy is facing a recession. The AIG's own manufacturing figures therefore show that the country has been sinking into recession since at least June. And Rudd's sudden spending binge can doing nothing to stop it.

As I have tried to make clear, the economic arguments of Richardson and Ridout are par for the course. I do not believe that a single member of our economic commentariat would disagree with them. Not only that, but quite a few journalists are quite happy to witness the financial crisis. David Nason, The Australian's New York correspondent, gleefully reported that "Greenspan,has finally conceded that the free market philosophy he championed for 40 years has fundamental flaws". ( 'I made a mistake' admits Alan Greenspan , 25 October 2008).

The flaw is not in the free market, Mr Nason, but in the crummy economics of the central banks. Under their wise guidance the world experienced the largest credit explosion in its history. The global financial system was flooded with masses of bank deposits which the economic geniuses in the newspapers, central banks, money markets, etc., misinterpreted as "excess savings", another dangerous fallacy that the classical economists thought had been permanently disposed of. The effect of this tidal wave of bank-created credit was to generate masses of world-wide malinvestments, economic distortions that would have to be liquidated once the crisis finally emerged.

One need only look at the Reserve Bank's shocking monetary record to see how bad things are. From March 1996 to December 2007 currency rose by 110 per cent, bank deposits by 178 per cent and M1 by 163 per cent. This year's monetary figures are particularly interesting. The chart below shows that monetary policy has been extremely tight since last December. (In fact, for the period of January to May monetary policy was actually deflationary).

The green line represents M1, [currency plus bank deposits] the red
linerepresents bank deposits and the blue line represents currency

These figures indicate that the economy is driving into a brick wall. No amount of spending can put her back on track until the necessary economic adjustments -- painful as they are -- have been made. As for China, it too has been just as reckless as every other central bank. This means that those who think she can be relied on to save Australia from recession are going to get coal in their Christmas stockings.

For ages I have been warning where the Reserve's dangerous monetary policy was leading. All to no avail. I was warning that Australia was definitely heading into recession while the economic commentariat was telling its readers and clients that there was not much to worry about and that economic conditions were "sound". So much for their grasp of economics, not to mention their ignorance of economic history.

*David Nason is a real piece of work. In a 'report' about the Bush economy -- one that suspiciously resembled Democratic Party talking points -- Nason parroted the Dems' lie that millions of children and adults were going hungry. He stated that the USDA (US Department of Agriculture) found that "more than 38 million Americans lived in hungry or 'food insecure' households". ( Bush's 'fine' economy sees millions go hungry , 27 February 2006).

What he did not say is that the USDA does not define "food insecurity" as hunger. Its own data showed that vast majority of those defined "food insecure" are overweight with 45 per cent classified as obese. Therefore his claim that millions of American children and adults were going hungry is a vicious libel aimed straight at President Bush. Needless to say, there never any articles in our media about hungry Americans when Clinton was president.

I'm afraid that most of our so-called journalists are a bunch of politically motivated liars.

By Gerard Jackson

Gerard Jackson is Brookes' economics editor.

Copyright © 2008 Gerard Jackson

Gerard Jackson Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules