A Recessionary Tale


Copper pricing is often considered a foreteller of the global economic growth, and the 17-month low printed early July brought with it some recessionary signaling (1). Other signals of an upcoming recession include:

-a 1.4% drop in US GDP in the first quarter of 2022,

-a 17% drop in real personal income in March alone and a 3.5% decline YoY,

-a rise in 30-year fixed mortgage rates which is hammering the housing market,

-unemployment rates steadily rising over the past 3 months,

-and a 2.5% YoY decline in Real Manufacturing and Trade Sales, which historically, only hits negative during recessionary periods (2).

Accompanied by rising prices (3), the type of recession to come is stagflationary (4) due to the oxymoron of higher prices despite lowered productivity (5) and demand (6).

Contrary to current mainstream understanding, inflation is actually—and was originally defined as—an artificial increase in the money supply within an economy, and the loss of purchasing power that follows was seen as a consequence of inflation, rather than its definition (7). This degradation of definition standards clouds the understanding of what causes inflation and when it correlates to rising prices (8). Clarity of understanding raises the question of whether central banks (9) and their policies (10) are more problematic than pragmatic, and casts further doubt on the wisdom of MMT (11).

Changing definitions is giving the National Bureau for Economic Research some wiggle room to not declare a recession, traditionally defined as two consecutive quarters of negative real GDP. The new approach claims to be based on a “holistic” view of the data, allowing more predilection to interpret the data and declare “transitory inflation” (12).

The recent rise of the dollar, in part due to rising rates, has made dollar investments more attractive again but has put pressure on US businesses dealing with exports, lowering profit margins and cutting earnings which will further dampen stock prices, particularly in firms with large international exposure. A strong dollar also burdens economies with dollar-denominated debt (13). The slump in corporate profits is estimated to cause another plunge in S&P 500 stocks (14). After a 1.4 trillion dollar loss by the world’s richest billionaires (15) amidst the outcry from the Democrats against Powell and his policies, dampened consumer and producer sentiments, and with the belief that interest rates have peaked (16), it’s easy to understand why some are bracing for troublesome days ahead (17) and clear that without massive interventions, a further decline of asset prices will continue to create a difficult environment for the Western-centric investors.

 

References

  1. With prices skirting a 17-month low, Dr Copper’s prognosis about the global economy is downbeat

  2. Here We Go Again: The Fed Is Causing Another Recession

  3. US Consumer Prices Soared In June, Americans' Real Wages Fall For 15th Straight Month

  4. The Strangest Recession Of Our Lifetimes

  5. Producer Price Inflation Unexpectedly Surges Back Near Record Highs In June

  6. US PMI Crashes Into Contraction In July: "A Worrying Deterioration In The Economy"

  7. Definition of Inflation

  8. Inflation IS Money Supply Growth, Not Prices Denominated in Money

  9. How Bad Were Recessions before the Fed? Not as Bad as They Are Now

  10. Inflation shows both the value and limits of monetary-policy rules

  11. Modern Monetary Theory Bites the Dust

  12. Recession? They’ll Tell Us That It’s Misinformation

  13. The dollar is the strongest it's been in 20 years — it's a bad thing for some US businesses and investors

  14. Bubble expert Jeremy Grantham predicts weak earnings will hammer stocks - and warns the S&P 500 could plunge another 25%

  15. Richest billionaires lose $1.4 trillion in worst half ever

  16. Democrats Prepare To Unleash Hell On Fed Chair Powell For The Coming Recession

  17. 2023 Will Be Year from Hell – Martin Armstrong


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