The Ultimate Recession Begins

From The New York Times:
LONDON — Factory activity worldwide stalled last month as new orders tumbled, a series of surveys showed on Thursday, heightening fears that the global economy may be heading for another recession.

In the euro area, the Purchasing Managers’ Indexes showed manufacturing activity contracted for the first time in almost two years in August. That echoed earlier data from South Korea and Taiwan, where new export orders fell sharply.
Britain’s manufacturing sector shrank at its fastest pace in over two years, hurt by a sharp drop in demand for exports, and figures due later Thursday in the United States are expected to show factory activity there declined for the first time since the recession.
Although China’s official P.M.I. increased slightly, its first rise since March, it also showed the effects of slowing demand in Europe and the United States.
The P.M.I. figure issued by HSBC bank for China, which relies more heavily on private companies than the large state-owned enterprises that dominate the government’s P.M.I. report, showed factory activity contracted for a second consecutive month.
From Bloomberg:
The Swiss central bank imposed a ceiling on the franc’s exchange rate for the first time in more than three decades and pledged to defend the target with the “utmost determination.”
The Swiss National Bank is “aiming for a substantial and sustained weakening of the franc,” the Zurich-based bank said in an e-mailed statement today. “With immediate effect, it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and “is prepared to buy foreign currency in unlimited quantities.”
The franc has surged to records against the euro and the dollar, hurting exports and eroding economic growth. While the SNB last month boosted liquidity to the money market and lowered borrowing costs to zero, investor concern that governments may struggle to contain Europe’s worsening debt crisis has continued to push the currency higher.
“The SNB has committed itself to creating unlimited amounts of francs and selling them versus the euro to defend the currency’s level,” said Fabian Heller, an economist at Credit Suisse Group AG in Zurich.
 From The Australian:

Gold for December delivery rallied $US25.90 to $US1902.80 an ounce in electronic trading on Globex. The contract had risen as high as $US1908.40 an ounce, according to data from FactSet.
Gold futures rose rapidly to touch a record $US1912.29/oz on August 23 before falling more than $US200 in the next 48 hours after US exchange operator CME Group hiked trading margins on gold futures.

Demand for bullion gained as US stock-index futures and European equities fell.


The latest action in the financial markets shows that the ultimate recession has begun.  Despite record low interest rates in western developed countries and the massive fiscal stimulus produced by large deficits, the economies of the west are not returning to any meaningful growth.  In fact, western economies are showing signs of deflation similar to those of 2008.
The housing market has not recovered in the US and is showing signs of collapse in Canada and Australia, the price of crude oil has not recovered to previous highs despite the peak oil hype, and joblessness continues to linger in many European and North American economies. 
In my view, we are about to discover that central planning by central banks controlling interest rates and manipulating currencies does not produce the anticipated results, they only produce bubble ripe for collapse.  This autumn I expect to see the collapse begin in earnest as the European debt crisis unwinds.
This crisis is all about debt.
An over-indebted consumer.
An over-leveraged banking system.
An overdeveloped sense of entitlement by citizens everywhere.
And over-indebted nations with so much government debt that the bond market demands higher yields.
This is why gold is so important in our current environment.

It is the ultimate extinguisher of debt.