US inflation declining, 28/12.
Consistent with the US Fed's desires, US goods and services inflation is declining after a worrying surge in the first half of the year.
The latest year to figure is is 2.5 %, compared to 2.7 % in October and 2.9 % in September.
Many commodity prices have fallen, a trend that if continued will be of great moment for Australia,
US equity prices for the year are approximately flat, compared with losses of around 15 % in other major markets. This 'decoupling ' is unusual and makes some experts say US share prices may beat emerging markets in 2012.
US improving, Asian house prices 'cooling', Eurozone in deeper trouble, 20/12.
US economic pulse beats stronger.
'DESPITE everything, the US economy is ending the year on a high note. Maybe, despite everything, it will sustain it into next year.
'Economists have spent the last two months playing catch-up. In October, they were looking for fourth-quarter gross domestic product to expand at a 2 per cent rate in the fourth quarter, according to The Wall Street Journal forecasting poll.
'By the start of December, they had upped that to 2.8 per cent. Now, forecasts are nearing 4 per cent'.
President Obama must be doing handstands in the oval office, while Henry's wintery heart beats slightly faster.
China property prices cool further in November.
'AVERAGE property prices in Chinese cities saw a second consecutive monthly drop in November, according to government data released yesterday, in a further sign Beijing's two-year tightening campaign to cool the red-hot property market is having an impact.
'Data on 70 Chinese cities released by the National Bureau of Statistics and analysed by The Wall Street Journal show average home prices declined by 0.17 per cent in November compared with October, compared with a 0.13 per cent decrease in October and a 0.01 per cent increase in both September and August.
'Prices rose 2.3 per cent on average in November from a year earlier, moderating from a 3 per cent increase in October'.
Other reports generalise to Asian property markets, including Australia's.
Eurozone capital flight.
'Risks to stability of the euro zone's financial system have risen "substantially" in the second half of this year, to their worst level since the collapse of Lehman Brothers Inc. in 2008, the European Central Bank said Monday.
'In its twice-yearly Financial Stability Report, the ECB said it is now vital for governments to implement the deal they agreed on Dec. 9, strengthening fiscal discipline across the region and increasing the firepower of financial backstops to tackle the crisis.
'The appeal comes as euro-zone finance ministers confer on how exactly to raise the €200 billion in additional funding for the International Monetary Fund that was promised in the Dec. 9 deal'.
A seperate report whose link I could not find says: 'Southern European investors, fearful of the health of their banks and the future of the Euro, are increasingly stashing their wealth in currencies, real estate and investment products outside the eurozone, say bankers and government officials'.
Henry's pre-Christmas assesment is available here.
Latest news 'merely' confirms trends, 16/12.
Overnight news simply validated trends well established by now. It seems there is no turning point within sight, and politics in Australia remains both venal and remote from the real problems of the world.
US jobless claims decline
'THE number of US workers filing new applications for unemployment benefits fell to the lowest level in three-and-a-half years last week, the latest indication a weak labour market is improving.
'Initial jobless claims fell by 19,000 to a seasonally adjusted 366,000 in the week ended December 10, the Labor Department said yesterday. Economists surveyed by Dow Jones Newswires had forecast claims would climb by 9000 to 390,000.
"This is unexpectedly great news," said Ian Shepherdson, chief US economist at High Frequency Economics. "If claims can remain at this level, payroll growth will strengthen markedly within a month or so."
Eurozone crisis escalating
'The European crisis is escalating and threatens every economy in the world, International Monetary Fund managing director Christine Lagarde warned overnight'.
"The issues that we have in front of us now are not just a concern for the eurozone, not just a concern for the European Union, not just a concern for the advanced economies," she told a forum on women in politics at the US State Department.
"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies, that will be immune to the crisis that we see not only unfolding but escalating."
China's costs blowing out.
'After decades as America's go-to destination for low-cost consumer goods, China is undergoing a profound shift. Rapid economic development and a smaller supply of young migrant workers are pushing up labor costs. Tack on rising raw-materials prices, driven largely by Chinese demand, and a strengthening currency, and China-made goods aren't the bargains they used to be.
'Higher labor costs in China are hitting U.S. spenders in the pocket this holiday season, making gifts more expensive. The WSJ's Deborah Kan and Alex Frangos discuss.
'In the past year, labor costs have risen 15% to 20% at Michaels Stores Inc.'s Chinese suppliers, says John Menzer, chief executive of the arts-and-crafts retailer. He says his company has spent much of the year seeking ways to partly offset those increases, such as by grouping goods from different suppliers into a single container to cut shipping costs'.
Eurozone crisis comes to a head, 10/12.
Massive relief rally followed overnight news of a United Euroland, minus Britain.
BRUSSELS — European leaders, meeting until the early hours of Friday, agreed to sign an intergovernmental treaty that would require them to enforce stricter fiscal and financial discipline in their future budgets. But efforts to get unanimity among the 27 members of the European Union, as desired by Germany, failed as Britain refused to go along.
In a day of historic, seemingly tectonic shifts in the architecture of Europe, all 17 members of the European Union that use the euro agreed to the new treaty, along with six other countries that wish to join the currency union eventually. Three stragglers, the Czech Republic, Hungary and Sweden entered the fold later, after a strong diplomatic push.
Twenty years after the Maastricht Treaty, which was designed not just to integrate Europe but to contain the might of a united Germany, Berlin had effectively united Europe under its control, with Britain all but shut out.
Action shifts to individual countries for approval and changing laws to confirm the new fiscal and financial rules. Then it is back to yet another Summit for ratification.
News from the Eurozone war zone, 9/12.
The author of Delusional Economics presents his comments on the latest press conference by those charged with saving the Eurozone, or finding a way to dismantle it without plunging the world into Depression.
He wrote yesterday for the Macrobusiness newsletter.
'This is my overview from the notes I took while watching the session about what he said:
* That the new fiscal "compact" would bring "confidence" to the market and that would help lower bound yields
* Deposits at the ECB were "Lehman like" and extra liquidity was not circulating, banks were de-leveraging because of pressure from regulation and the market. Lengthening of term lending should provide confidence
* Banks should re-capitalise but without effecting lending
* In the 1st qtr of 2012 there are 230 billion euro of bank bonds to roll over so the ECB was lengthening term of ECB funding for provide liquidity
*That austerity was occurring because there was no other choice. This will bring short term "pain" but is needed. Structural reforms are essential for competitiveness and jobs growth and enhanced competitiveness will kick start exports
*The short term pain caused by fiscal consolidation ( austerity ) needs to offset. This will be provide by the "confidence effect" of the new fiscal compact
*It is imprudent to have a plan for the breakup of the Euro as it won’t happen
*So, basically, Mr Draghi’s answer to nearly every single question was my worst fear. His answers were completely disconnected from the economic reality of the situation in Europe. It seems he has completely misinterpreted what the markets are interested in and, far more worryingly, believes that a new treaty centred around supra-european austerity will bring confidence in such quantities as to offset the current crisis. He seems to have completely misunderstood the continuing effects of austerity on the periphery claiming that these are "short term" and once "competitiveness is restored" these countries will grow via exports.
'I am not sure I have ever witnessed a more disturbingly dangerous display of delusional economic ideology in my life.
'It would appear at this stage that there is no credible transition plan for Europe. Unless I see one announced by European nation leaders in the next 24-28 hours then my base case for Europe is something far worse than the current situation'.
US jobs rise, unemployment falls, 3/12.
SkyNews reports: 'A sharp drop in America's unemployment rate is offering a flicker of hope for President Barack Obama and his fellow Democrats ahead of next year's elections.
'The figures suggest that the US economy is on a firmer footing in the run-up to a presidential campaign. The Labor Department reported the jobless rate fell to 8.6 per cent in November from 9 per cent the month before. That is a 32-month low.
'The White House and congressional Democrats reacted quietly to the good news, but stepped up criticism of anti-tax Republicans for blocking measures they said could help create even more jobs. Those include an extension of an expiring payroll tax cut for the federal retirement program Social Security that largely benefits the middle class.
'The unemployment rate went down,' Obama said. 'And despite some strong headwinds this year, the American economy has now created in the private sector jobs for the past 21 months in a row. That's nearly 3 million new jobs in all, and more than half a million over the last four months.'
'That's still high unemployment by historical standards. And there are continuing problems, including Europe's debt crisis and the tens of millions of Americans who are still out of work or otherwise feeling economic distress. Furthermore, part of the improvement came because 300,000 people stopped their job searches and were no longer counted as unemployed'.
Is it the end for the Eurozone?, 28/11.
The Economist this week asks of the Eurozone 'Is this really the end?' The answer is 'Yes, Unless Germany and the ECB move quickly, the single currency’s collapse is looming'. The breakup of the Eurozone would be very messy and involve sovereign, corporate and bank failures that would make the credit cruch following the failure of Lehman Brothers look like a bankers picnic.
In this case, the developed world will lapse back into recession, growth will slow inChina, India and other developing nations and Australia's predicted recovery will be postponed, perhaps aborted. More here.
The powers catch on, 26/11.
'THE tentacles of Europe's debt crisis are clutching at the heart of the Australian economy with global credit markets frozen in a "Lehman-style way", reports Matthew Stevens, 'triggering warnings from the nation's most senior bankers that a new financial crisis is upon us.
More here, if you can stand it.
Gloom spreads reflexively, 24/11.
Eurozone output drops sharply.
US Economy fails to accelerate.
Rising industrial unrest in China.
Whither Asia? asks Henry, 22/11.
She'll be right, mate' was a bit of Aussie culture picked up by President Obama during his recent visit.He must hope, of course, that this wonderful piece of folk wisdom will apply to his re-election. He will note that left of centre governments are falling like dominos in Europe and are on the nose in Australia.
The pundits have been saying 'she'll be right' with the Australian economy on account of the strength of China's economy and indeed of the Asian economies generally.
But Asia cannot be immune from slow growth or serious recession in Europe and the USA. More here.
Whither Europe? asks Henry, 21/11.
Good news, gentle readers. Historian Niall Ferguson has boldly but with characteristic humour taken a look at 'the new Europe' in 2021. It seems current travails have largely been overcome. To be sure, the nations of 'holiday land' (Spain, Portugal, Italy, Greece and Malta) are still doing it tough, but buoyed by a 'steady flow of funds from the north European core'.
The reformed Eurozone is now called the United States of Europe (USE) with more members than the old Eurozone. Its capital is in Vienna, far more welcoming to Germans than Belgium, for reasons the Germans profess not to understand, and the USE president is Karl von Habsburg - redemption after a century or so.
Henry concludes that the outlook for Europe is not so cheery. Read on here.
Gold purchases by central banks surge, 18/11.
'Central banks made their largest purchases of gold in decades in the third quarter', reports Jack Farchey from London, 'as a sharp drop in prices in September spurred buying to diversify reserves.
'The scale of the purchases at 148.4 tonnes on a net basis was far bigger than previously disclosed and puts central banks on track to buy more gold than at any time since the collapse of the Bretton Woods system 40 years ago, the last time the value of the dollar was linked to gold'.
Could the bankers responsible for financial stability be preparing to reintroduce a well tried system abandoned by President Nixon four decades ago?
Watch this space.
More here. US retail sales rise, 16/11.
'US stocks turned positive late in the session this morning, reversing earlier declines, as investors were encouraged by improving domestic economic data even as worries lingered about rising Italian bond yields and eurozone sovereign debt.
'The market also got a boost following reports Mario Monti, the nominee for Italy's prime minister, is expected to meet Italian President Giorgio Napolitano later today. Mr Monti is seen accepting the task of forming of a new government with broad bipartisan support and launching an effort to tame doubts about Italy's sovereign debt.
Bye, Bye Berlusconi, 14/11.
The Economist is scathing about the playboy Prime minister, who resigned over the weekend: 'When the world’s third-largest bond market begins to buckle, catastrophe looms. At stake is not just the Italian economy but Spain, Portugal, Ireland, the euro, the European Union’s single market, the global banking system, the world economy, and pretty much anything else you can think of ...'
The yield on Italian bonds reached an unsustainable 7.5 % (see explanation) and subsided to a still unsustainable 7.0 % once the change of regime was announced.
'Italy will be the crucible which tests the euro to destruction—or survival. Only a few weeks ago, that test still seemed avoidable. Now it is at hand. If the euro zone wants its currency to survive, it must stem the panic and make Italy’s vaudeville politics credible'.
'Italy is not yet insolvent. Although the rescue plan set out by the euro zone last month is in tatters, the European Central Bank could still gain time by pledging to buy Italy’s debt in unlimited quantities and to protect European banks, as The Economist has argued. The signs this week were that the ECB had stepped in to ease Italian yields. But it has not yet made that vital public pledge to do whatever it takes, without limit, to create a proper firewall and stop the panic'.
China's inflation cools, if the numbers are fair dinkum, 10/11.
'CHINA'S inflation slowed significantly in October, which may open the door for policy makers to further loosen policy to support growth.
'The country's consumer price index, a key gauge of inflation, rose 5.5 per cent last month from a year earlier, down from 6.1 per cent in September, the National Bureau of Statistics said. The reading was slightly above expectations for a 5.4 per cent rise, according to the median forecast in an earlier poll of 12 economists.
"The October CPI confirms the headline inflation is on a downward trend," Nomura economist Zhiwei Zhang said in a note. "Lower inflationary pressure leaves room for further policy fine-tuning."
Henry grapples with 'Two speed economy' issues in today's blog.
Greece, Italy, China - when will it end?, 8/11.
There will be a new Greek PM, a new government of national unity and a plea to avoid unhelpful austerity. How else do they intend to repay even half their bloated public debt? one is forced to ask.
The answer, if it is an answer, seems to be privatisation. George Soros has reportedly asked what one has to pay for the Parthenon.
Now Italy is in the spotlight. Ms Merkal and M Sarkozy have told the Italian PM he has to go and the privatisation program is already being drawn up. The Coliseum should get the firesale off to a good start.
China's house prices are falling and this is more grist for the bear case for commodity prices.
'An unanswered question' says the WSJ, 'is whether China can gently let the air out of its real-estate bubble or whether the bubble will burst, undermining economic growth. With the European Union and U.S. struggling to kick-start their own economies, global growth depends increasingly on the health of the Chinese economy, the world's second-largest'.
The game's up, 7/11.
Henry's brave support for the old fashioned virtues of hard work, thrift and innovation was all but ignored last week.
But help is at hand. Matthew Parris of The Times is reproduced today in the Australian under the heading 'We're broke, but we can't face reality'.
'The game's up. It's not the end of the world, or even of our world. We're not going to die. We're not going to starve. But the direction is gently down for the rest of our lives. Whether there's any way of getting people to vote freely for economic decline has, I believe, yet to be tested. The evasion will continue a while yet'.
Do read and ponder the full article, gentle readers. Here is one man, a former politician turned journalist, who understands. 'Our output is falling behind while our shopping habits have raced ahead'.
US jobs improving - slowly, 5/11.
The U.S. job market strengthened in the past three months, signaling an economic recovery that is inching in the right direction but still vulnerable to global shocks.
Employers added 80,000 jobs in October and the government revised up sharply the number of jobs created in the two previous months. The unemployment rate clicked down 0.1% to 9%, a positive development that happened because more people entered the job market and found work, not because more discouraged workers gave up looking.
Austerity vrs stimulus - the fateful question, 4/11.
Robert Skidelsky, biographer of Keynes, has warned: 'The world economy is on the edge of a precipice. The best we can hope for now is a managed retreat from the wilder shores of globalisation. The alternative is the collapse of the euro, protectionism – and even war'.
'The resulting damage over the past four years has been huge. The world economy contracted by 6 per cent between 2007 and 2009, and recovered 4 per cent. It is 10 per cent poorer than it would have been, had growth continued at the rate of 2007, and the pain is not yet over. Today, we are in the first stages of a second banking crisis. It may already be too late to avoid a "double dip", but it may still be possible to avoid a triple dip. For this we need a robust intellectual analysis of what is required to ensure durable recovery, and the collective political will to implement it'
Europe stuffed; US stagnating; Asia growing strongly, 3/11.
One of Henry's most read blogs was posted on 1 November 2007. Its heading told the story 'US recession inevitable; China unstoppable'.
The visiting guru, like Voldemort whose name cannot be spoken, has returned to Australia for his annual visit, slightly peeved that his visit coincided with the horse race that stops a nation, as this reduces his opportunity to practice his guruship.
Henry caught up with said guru thanks to the good offices of Shane NcNeice. His headline on this occasion might be 'Europe absolutely stuffed; US to struggle for a decade or more; Asia to grow strongly'.
More from the guru here.
Global outlook 'benign'; US economy strengthening, 26/10.
Australians have been left feeling cheerier by RBA Deputy-Chief Ric Battellino.
Global gloom deepens, 21/10.
Global recession 'highly likely', says an experienced economy watcher - representing the prevailing gloom.
'EUROPE'S financial troubles are hurting the Australian economy through lower share prices and reduced confidence', reports David Uren. Stating the bleeding obvious, it seems 'Treasury believes the effects are minor compared with what would happen if Europe's leaders are unable to resolve the crisis'.
'Greece engulfed as Euro flickers' says AFP.
'GREECE braced for a second day of street violence and strikes overnight as parliament prepared for an austerity vote to avert a debt default and European leaders and central bankers worked frantically ahead of a summit to save the 17-nation euro currency'.
Eurozone leaders are flailing about, and market participents are reacting like startled mercats to every shift (or apparent shift) in the economic breeze.
Already the most experienced observers know the balance of probabilities are weighted to the worse end of the possible spectrum.
Donald Tsang, Hong Kong's Chief Executive, is reported today as seeing a 'high liklihood' of global recession.
"I'm afraid all the ingredients for another slowdown in the global economy are coming", Mr Tsang said earlier this week, as reported in today's Oz, P 25. (The brand new 'pay for content' model shortly to be introduced seems to have resulted in a net loss of links, so I cannot provide this for this article.)
"The lack of investor confidence and the slowdown of consumption both in Europe and America are not good signs".
Meanwhile, BHP Billiton powers on despite the manifest uncertainties - this is the boomside of the current two-speed global economy. More here.
Eurozone leaders (finally, we hope) get their act together, 10/10.
'SHARES were higher at noon, bucking a weak US lead as investors took heart in a plan to recapitalise ailing European banks to help contain the impact of the euro-zone debt crisis.
'The local market took less than half an hour to move into positive territory at the open, despite Wall Street stocks closing in the red on Friday after a credit downgrade on Italy and Spain.
'Shares moved higher in early trade, and by noon (AEDT), the benchmark S&P/ASX200 index had gained 42.3 points, or 1.02 per cent, to 4205.2 and the broader All Ordinaries index had climbed 41.7 points, or 0.99 per cent, to 4266.7.
'Bell Direct analyst Julia Lee said a vow by Germany and France - the euro-zone's two biggest economies - to strengthen Europe's shaky banking sector by the end of the month had helped boost the market after last week's uncertainty.
“There are no details yet, but it does seem to have lent support to the Euro and we know the market has been driven by headlines,” she said.
'Protectionism beckons as leaders push world into Depression' says Ambrose Evans-Pritchard, 8/10.
'The world savings rate has surpassed its modern-era high of 24pc. This is the killer in the global system. It is why we are at imminent risk of tipping into a second, deeper leg of intractable depression.
This is a scary article, building as it does on some fine work from the Bank for International Settlements previously discussed here.
Evans-Pritchard concludes: 'The IMF's Christine Lagarde understands the risks intuitively. The global economy is entering a "dangerous new phase", she warns. Leaders must prepare for "bold and collective action to break the vicious cycle of weak growth and weak balance sheets feeding negatively off each other". Central banks must stand ready to "dive back into unconventional waters as needed." Read on here.
The global economy is in a 'danger zone', World Bank President Robert Zoellick warned recently, 4/10.
This makes a case for potential rate cuts here but I expect the Reserve Bank to keep its powder dry for the present, though its powerful economic team will be quizzed hard before this decision is accepted by the board.
The facts of the matter are twofold. Global catastrophe is still potential, though the odds on a 'double dip' growth recession (or worse) are shortening. And, despite a number of strains within the Australian economy, the overall situation is still robust.
Zoellick offered what was described as a 'stark view' of the global economic outlook. The problems of European debt, Japanese stagnation and American political gridlock have been widely discussed, but he has growing concerns about the status of developing nations,
Developing nation growth will not be immune to slow growth or even renewed recession in the advanced nations. Developing nation consumers could suffer loss of confidence and business could reduce investment. The Reserve Bank’s excellent Chartpack (updated to 1 September) shows declines in global share prices and bond yields. The data for September that will be available to the Board will show sharper falls in share prices in all countries with a distinct degree of positive correlation, refuting the usual argument for widely diversified portfolios.
Some developing nations are 'walking a monetary policy tightrope', attempting to combat inflation including high and volatile food prices without unduly slowing economies. There is also a rising threat protectionism, and developing countries face 'increasing headwinds'.
Market blues, 1/10.
'THE US stock market dropped more than 2 per cent overnight as signs of slower growth spanning China, Europe and the United States, and the ongoing Greek crisis, hung darkly over the markets'.
In Australia, the September quarter for equities was one of the most volatile ever known, and housing prices have been falling.
And we learned yesterday that Australia's budget for 2010/11 produced a deficit of almost $50 billion.
Shadow Finance Minister Andrew Robb said the current Labor government has not yet delivered a surplus, and will not do so, despite the Treasurer's continued promises on this matter.
Peter Martin reports that 'Australia's long-term budget position is far worse than has been acknowledged, according to Business Council of Australia research for next week's tax forum.
Read on here.