- New global data show grim results. China's real estate
was especially bleak. It reported 70% of its 70 largest cities experiencing
home price deflation, up from 47% in October. Rarely ever does this bode
well for economic prospects or banking.
- As a result, copper is down 0.7% and 25% in 2011. The
base metals complex also dropped 1%.
- In Japan, department store sales were down 1.9% year
over year, the fifth consequence negative reading. In October, Spain's
service sector declined 2.7% year over year.
- In America, recent data reflect downtrends in restaurants,
clothing, jewelry, department, grocery, and drug store sales, household
appliances, clothing, chemical products, electrical and communication equipment,
machinery, paper and wood products, semiconductors, and computers and accessories.
- Wage growth is especially weak, showing declines in four
of the past six months, and 1% annually year over year.
- Global economies also show weakness. Notably, it's showing
up in negative paper boxes and containers four consecutive months and in
free fall year over year.
- On December 17, Hoisington Investment Management's Van
Hoisington told Barrons he's bullish on bonds because of America's weak
2012 economic prospects.
- He believes in Irving Fisher's 1930 Theory of Interest
calling long rates a function of the real rate, plus expected inflation.
In the last 140 years, the real rate's averaged about 2%, with wide variations
up or down.
- With deflationary pressures persisting, he sees bond
price appreciation or bottoming around the real rate if (core) inflation
stops at zero. "We aren't there yet, but we're headed in that direction.
That's why we've had a bull market and why it will continue until such
time as inflationary expectations start to rise."
- The fundamental global problem, he believes, is "disequilibrium"
because of over-indebtedness. In America's $15 trillion economy, "we
have $52 trillion in debt, which is 350% of GDP."
- According to economists Ken Rogoff and Carmen Reinhart,
the McKinsey Global Institute, and Stephen Cecchetti (former New York Fed
research director), when debt to GDP levels are too high, growth rates
fall. It's happening today in America and other over-indebted economies.
- America spends $3 for every $2 in revenue, so another
dollar has to be borrowed. "We can't continue that pattern" much
longer. Moreover, the nation's disposable income declined year over year
because people kept spending. As a result, heading into 2012, income's
falling. Savings are low, and Washington's enacting austerity when stimulus
- Moreover, accelerated depreciation ends January 1. Traditionally
when it happens, new manufacturing orders suffer dramatically. In addition,
most countries are declining economically, especially Europe, Japan and
China. Other countries show dramatic slowing. It spells trouble and decline
- While US GDP shows positive reads, real Gross Domestic
Income is weakening. Europe is especially weak. Fitch placed Italy, Spain,
Ireland, Belgium, Slovenia and Cyprus on credit watch. Downgrades may follow.
- It also warned that a comprehensive Eurozone deal was
"beyond reach." In addition, it downgraded Bank of America, Goldman
Sachs, Morgan Stanley, BNP Paribas and Barclays. It'll also complete a
Eurozone review by end of January when conditions may look bleaker.
- S&P suggested potentially devastating downgrades
for France, other Eurozone countries, and possibly Germany. Moreover, the
IMF warned of conditions "reminiscent of the 1930s depression,"
saying dramatic action is needed.
- "The risks of inaction include protectionism, isolation
and other (destructive 1930s) elements. This is exactly (what) happened....and
what followed is not something we are looking forward to."
- However, everything tried so far failed. Debt levels
keep rising. Austerity means less spending, fewer jobs, and greater public
anger than today's high levels.
- Insolvent sovereigns and banks are spreading contagion
globally. At the same time, "(t)he more that governments cut their
budgets, the more they sink their economies, and the bigger their bank
losses. (Moreover), the more that banks seek to build their capital, the
more they have to (cut) lending - a key factor driving the global economy
into a tailspin."
- An early 2012 Martin Weiss study will show 16 of the
world's largest banks weak and vulnerable. They control $26 trillion of
global banking assets, far more than all US commercial banks combined.
- On December 16, Moody's downgraded Belgium two notches
and warmed of others in all 17 Eurozone countries.
- As a result, Weiss believes 2012 will be worse than 2008.
At yearend, large global banks have far less capital now than then, and
governments have less bailout power to help.
- However, publicly, governments, bankers and media scoundrels
are in denial. Weiss quoted Emil Zola a century ago, saying:
- "If you silence the truth and bury it underground,
it will grow and gather such explosive power that the day it bursts through
it will blow up everything in its way."
- It's why revolutions ignite, markets crash, and economies
collapse. In America alone, 2,700 banks and 2,600 credit unions are vulnerable
to financial failure. Major European ones could collapse first, followed
by their US counterparts.
- After four years of decline, America and Western economies
show more weakness than ever. It suggests rough going in 2012 and beyond.
- Stephen Lendman lives in Chicago and can be reached at
- Also visit his blog site at sjlendman.blogspot.com and
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