Rich's Writings 10/26/12 7:49:21 AM
Ever since the financial collapse of 2008 the direction of international grain markets has been primarily determined by the waxing and waning of global economic opinion. Periods of seemingly unbridled optimism have been followed by bouts of rampant pessimism, causing commodity values to soar and plunge, aided by unrelated developments such as tsunamis and droughts.
During this time the financial conditions of most major industrialized countries have deteriorated, triggering massive deficit spending and bringing with it the expectation of barely-controlled inflation. The European debt quagmire is the latest seemingly unanswerable dilemma that has dominated global economic decisions since early 2011. Governments and central banks have walked a tightrope in their attempts to sufficiently advance economic growth and avoid budgetary catastrophe during the intervening period.
A comparative analogy is one of an overloaded airplane hurtling down a runway ending at the ocean, attempting to get its wheels off the ground before it plunges into the deep. All aboard hope and pray that the craft’s wings can produce enough lift to avoid the abyss. This is the current position of the global economy. The end of the runway is getting closer, but the wheels are still on the ground.
The engines are simply not producing enough thrust.
Here is some new data worthy of consideration. The volume of world trade fell for the third straight month in August, a decline which could make it difficult for many economies undergoing austerity programs to return to growth.
In its monthly report, the Netherlands Bureau for Economic Policy Analysis, also known as the CPB, said Thursday that exports from the U.S., Japan and Latin America declined, and world trade volumes fell by 0.4% as they did in July, having fallen by 1.3% in June.
Trade volumes haven't fallen consecutively for so long since the five straight months beginning in November 2008, when many developed economies were contracting as a result of the financial crisis that intensified after the collapse of Lehman Brothers in September 2008. The declines then were much larger than those recorded between June and August.
The problem is, the 2008 declines came amid the Great Recession. Today we are supposedly in the third year of recovery from the recession.
With trade growth declining, many economies that are undergoing austerity programs (some in Europe, and likely very soon, the United States) may find it difficult to implement policies that result in improved economic growth rates. Particularly in the euro zone, governments that are cutting spending to try to narrow big budget deficits need stronger export and tourism revenue to compensate for weakened domestic spending. The CPB's figures are closely watched by policy makers, including a number of central banks, because they provide the earliest available measure of global trade.
The CPB said exports from the U.S. fell 1.4%, while exports from Japan were down 0.7% and exports from Latin America were down by 0.6%. Import volumes declined in nearly all regions, the CPB said. On top of this, the World Trade Organization last month cut its forecast for growth in world trade during 2012 to 2.5% from 3.7%, citing slowing global output, while the International Monetary Fund cut its forecast to 3.2% from 3.8%, although it expects trade in goods and services to grow by 4.5% next year.
If economic growth is stagnant, the only way to increase exports of any given product or commodity is by lowering the cost. The world’s central banks have chosen inflation as the remedy for the lame economy, which raises costs. As a result, countries that rely on imports of raw materials will find it harder and harder to produce affordable products while countries that are able to operate on domestically produced inputs - energy, metals, farm products, technology - have the greatest hope for achieving growth.
Those who look to a reinvigorated China as the means to global economic recovery are wrong. China is not energy independent. It is not agriculturally independent. It is not technology independent. All it really has is cheap labor, and even that advantage is rapidly dissolving. China is the post-Cold War equivalent of Japan following World War II.
If government chooses to allow it, the United States is capable of turning the rudder on what is currently a sinking global economic ship. We have the natural resources, manufacturing capability and the technology to do so. All of the puzzle pieces are within our grasp. We simply need the vision and the leadership to allow us to put the puzzle together.
This is the true picture of a global economy.