Juggling Dynamite

The Organization for Economic Co-operation and Development just cut its 2016 global growth forecast again and warned that new ideas and approaches are needed to get the world back on a stronger economic foundation. Monetary has been done to death, fiscal has been stuck in political impasse and structural reforms are unpopular because they require breaking up of status quo conglomerates and writing off bad debts (bad because they were recklessly lent and cannot be repaid).

Bottom line: financialization has milked the cow to the verge of demise, now it is time to stop focusing on extraction and start investing time and money in building back health in the herds.  This means saving more and a focus on efficiency. And yes it means less short term spending and consumption while coffers are rebuilt.  See:  Act now or risk another deep downturn, OECD warns policymakers.

“Policymaking is at an important juncture. Without comprehensive, coherent and collective action, disappointing and sluggish growth will persist, making it increasingly difficult to make good on promises to current and future generations,” the OECD’s Chief Economist Catherine Mann said in a summary of the report.  Here is a direct video link.

Danielle was a guest today with Kerry Lutz on The Financial Survival Network talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.

In an increasingly desperate quest for cash flow, debt-heavy China moved to cheapen exports by weakening its currency again last week,  increasing its Yuan/U$ peg to the highest ratio since 2011.  Here’s the chart of the Yuan over the U$ since 2011 showing the series of lower lows.

Each time the Yuan has rallied for a bit, risk markets went along for the ride, before also breaking to lower lows once more.  We watch this latest roll over with interest.

As global demand continues to retrace from the unsustainable debt-fueled pace of 2005-2011, excess capacity and supply is depressing prices (and revenue) and the need for production worldwide.  China’s many cash-strapped competitors will need to follow suit in weakening their currencies/export prices further as well.

“The ripples are likely to spread further out,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “As China’s economy continues to cool, it will provide an ongoing drag on global output, curtailing inflation pressures in the process and anchoring interest rates in the process. The economic malaise currently experienced by China’s immediate neighbors, therefore, is only a portend of a milder version to afflict economies elsewhere as China comes off the boil.”  Here is a direct video link.