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The Only Thing Growing Is Debt

The past few days have seen another batch of blah economic reports in the US:

Weak U.S. retail sales hint at slower economic growth

(Reuters) – Retail sales last month were broadly weak, with receipts at auto dealerships falling 1.1 percent after rising 1.8 percent in May. Clothing stores sales dropped 1.5 percent, the largest decline since September 2014.

Receipts at building material and garden equipment stores fell 1.3 percent and sales at furniture stores declined 1.6 percent, the biggest drop since January last year.

There were also declines in sales at online stores and at restaurants and bars. Rising gasoline prices supported sales at service stations, where receipts rose 0.8 percent.

Coming on the heels of June’s disappointing employment report and sharp drop in small business confidence last month, the weak retail sales data suggests the economy might have lost some momentum at the end of the second quarter, having struggled at the start of the year.


Businesses not growing as fast in Philly region, Fed survey shows

(MarketWatch) — U.S. manufacturers in the Philadelphia region are still growing, but not very fast.

The Philadelphia Federal Reserve’s index of business conditions declined to 5.7 this month from 15.2 in June, marking the slowest pace in four months. Economists polled by MarketWatch had expected the index to slip to 12.5.

Philly Fed July 2015

Still, any number over zero means more companies are expanding instead of contracting.

Perhaps a bit more worrisome, manufacturers also scaled back on staffing. The bank’s employment index fell into negative territory for the first time January and for only the second time in 25 months. The pace of new orders also tapered off. The index for new orders sank to 7.1 from 15.2 in the prior month.


Empire State New Orders Negative 4th Time in Five Months

The manufacturing sector isn’t picking up any steam this month based on the Empire State index which came in only just above zero, at 3.86. The new orders index, ominously, is in negative ground at minus 3.50. This is the fourth negative reading in five months for new orders which points squarely at slowing overall activity in the months ahead.

And hiring this month has slowed, to 3.19 vs June’s 8.65 in yet another soft signal. Price data show moderation for inputs at 7.45 vs 9.62. One plus in the report is a slight uptick in the 6-month outlook to 27.04 vs 25.84.

None of this is really new. US manufacturing has in fact been weak for a while. But the timing and circumstances make it ominous: Six years into a recovery and with interest rates at record (and unnaturally) low levels, this kind of gradual slowdown should not be happening. Traditional economic theory says Main Street should be booming, wages should be rising strongly and inflation should be the emerging risk. That it’s not implies that the US and the rest of the world can’t grow fast enough to reverse the upward trend in debt/GDP. See China’s Debt-to-GDP Ratio Just Climbed to a Record High.

It seems that we’re still violating one of the basic rules of common-sense living: When you find yourself in a hole, the first thing to do is stop digging.

8 thoughts on "The Only Thing Growing Is Debt"

  1. In light of the aforementioned text, these thoughts further are disconcerting. Walmart has lost profits for two years. Collaboration: What global factors are effecting Walmart’s profits? My opinion is there is still an overall global economic downturn. We further now see strategic rivals to the low price items of Walmart by Dollar Tree, Dollar General and Family Dollar. When Walmart looses its market share to its rivals, there is still no global increase. It is just a shift of the business from one retailer to another in other words from Walmart to their competition. This is no global increase in productivity or wealth just a shift in who has the wealth. What a travesty!

  2. This subject of debt growth outpacing real (and even nominal) economic growth is essentially the fundamental limitation of the current fractional reserve banking and monetary system that the world uses today, and has been a regular topic of discussion at this blog for years.

    Basically, there comes a time (like now) in which economic growth – the balanced increase in production and demand – begins to fall behind the mathematically necessary rate of growth of the “money supply” (which really means the amount of outstanding credit, or debt owed.) That is the beginning of the end for the existing monetary system because it is unsustainable. Additional credit can be created “artificially” (meaning without economically sound demand) by “printing money” as the central banks of the world have been doing since 2008. However, if real economic growth doesn’t catch up with the increase in credit the system becomes inherently counter productive because more and more “profits” and “incomes” have to go towards paying the interest on the existing debt levels instead of new capital investments. At some point, theoretically, all profits and incomes (both personal and government) goes toward debt servicing with nothing left over. That’s the “wall” the global economies are fast approaching.

  3. Results of supply side economics breaking up the virtuous cycle that was to good for the elite conservatives in the good years, 50’s to the 70’s. They have been successful at selling us Robert Mundell’s creation that now we lack demand and supply in our own country but must rely on foreign countries to sell us goods and buy our debt. Germany didn’t fall into the trap in the 80’s but still has 20% of its manufacturing and devalues its currency to keep competitive and good wages to keep demand up. I have to laugh at conservatives in the business community always comparing our problems with Greece but never stop to analyse the difference between a robust economy, Germany, and ours. And it’s because the wealthy and the corporations are in control of the media and the message that share holder value is more important than spreading the wealth to the working class. I have to add that early in our history corporations were created by states to add to the social welfare of the country and now they act like welfare queens with overpaid CEOs raping the economy for themselves and the one percent who own most of the outstanding shares, and to hell with the working class. It the stuff of revolution our founders would go to war over. It’s pushing Bernie Sanders numbers up everyday. Our children deserve better.

  4. So much for the Stock Market being a forecasting tool when the U.S. Federal Reserve has made speculation in financial assets with virtually cost-free money the order of the day. Yellen and her two predecessors have placed themselves in a real box with interest rate policy now going to be totally ineffective with no place to go to lower rates to save the markets and the economy. How a 1/4% increase in short term rates would topple the largest economy on the planet is beyond comprehension, but that shows you how leveraged the U.S. is and sitting on the edge or actually already tipping over it.

    IMPOSSIBLE TO SERVICE TODAY’S UNPRECEDENTED GLOBAL DEBT IN A DECLINING GLOBAL ECONOMY! Devaluation and inflation will be necessary in buckets to try to reduce the burden this crushing load is going to place upon the citizens of the world.

    1. The Federal Reserve and US Government are essentially speculating in the equity markets directly now, meaning there is no longer any mechanism for price discovery. Meaning also the medium of exchange involved also has no longer a rational fundamental value in any exchanges, in short we can’t know what our “store of value” legal tender is now worth. Thus prices in the economy are becoming unhinged, I catch a lot of grief over this statement but where I am living in Southern Oregon we are experiencing vast double digit inflation with some really spectacular over 100% price increases in many things. But, rents are up no less than 40% in two years and that is KILLING the local economy. At least in this region the end is near with a hyperinflationary collapse dead ahead.

  5. Yellen should have raised rates a long time ago. Instead the market will eventually raise them for her.

    I’m sure the ex-Politburo Soviets still alive marvel at how the US has become a ‘centrally planned economy’ with oligarchs at the top and a corrupt political class. Toss in the meaningless votes of the people and we’re headed to where Soviet Russia was…

    We even have Jade Helm to ‘prove it’.

    1. for many of us with passports suspended unlawfully and threatened with prison if we don’t work at jobs that are simply evil we’ve been a soviet style oligarchy for many decades. it’s just that now those policies are being extended to the general population. the US for all intents and purposes is a third-world country. the only difference is that some of the population still enjoys the vestiges of a reserve currency, huge debt (which men like me are paying for even though we’ve never been in debt ourselves) and considerable welfare (of which many who contribute disproportionally more to programs are denied any benefits). the only thing sustaining the US is slavery.

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