The WWWW Recession

In our last post we promised to discuss coming economic trends. Today we will briefly examine several recent developments.
· Baltic Dry Index’s variability
As we can see from the graph of this shipping index, the BDI has plummeted from its 2008 high and has been rising and falling in a limited low range for some months. This rising and falling in shipping gives rise to the idea of a www recession of false starts and then production and export drops.

Check out this link showing CP’s decline in rail volume.
http://www.financialpost.com/news-sectors/story.html?id=1525947

· Chinese stockpiling of metals
China has been busy buying shares in copper and gold mines and the oil sands. Additionally, they have been stockpiling multiple months and even years worth of copper, aluminum, iron ore, indium and other rare metals (this also accounts for much of the upswings in the Baltic Dry Index).
Are the Chinese gradually replacing their vast reserves of US currency to buy tangible industrial materials they will need for future construction?
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aF6Ch_1DFX.s
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aewgacIfWRB8

· Automotive companies near bankruptcy
The fact that two of the major car manufacturers are near bankruptcy and are taking a hard line approach will labour gives us a sense for the nature of this recession. It is not the run of the mill cyclical or inventory recession. It is a structural recession. In other words, the nature of the business has shifted and requires a change to the structure of the company itself to become competitive of the company will fail.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8pUsUcjYsdk

· Central Banks Quantitative Easing policies
In a vain attempt to restart consumption, central banks in several countries including the US, UK, and Canada are either engaged in, or considering QE (printing money).
The problems inherent with QE include the potential for currency debasement and the associated high levels of inflation. This potentially hazardous path has many dangers. The most serious is the onset of sudden rapid inflation during a time of increasing unemployment.
The worldview behind bailouts and QE policies is flawed. The assumption is that by ensuring enough money is in the system that the economy will resume business as usual growth. This is the Keynesian argument that was disproved during the stagflationary 70s. Strangely, most economists today are trained with a Keynesian perspective that blinds them to the folly of this policy. If the economy needs to be structurally changed pouring more borrowed or printed money into the system in an attempt to avoid the change is futile. Change may be delayed, but the costs will simply grow even larger. Sadly for regular citizens, this approach by government will result in even higher taxes and much reduced services as government revenues drop.

Contrary to the philosophy of the socialist state, there is no such thing as a free lunch. Absolutes do exist and borrowing our way to prosperity is a flawed idea that has no happy ending.