The big question for the world: is China growing, slowing, or in recession?

Summary: China is both the key driver of the world economy and the least well known of the major nations. With unreliable economic statistics, a rapidly evolving economy that defies easy analysis, and deep corruption, it defies analysis. But its growth or recession might determine the course of the world economy during the next decade. This post provides a realistic outlook, debunking the dreamy consensus expecting continued rapid growth.

“God takes care that trees do not grow to the sky.”
— Ancient German proverb.

From Evercore: China might already be in a recession (red line)

Evencore: estimate of real China GGP

This graph is from a report by Evercore ISI), founded by Roger Altman (Asst Secretary of Treasury for Carter and Deputy Secretary for Clinton) — Excerpt…

“Our proprietary Synthetic Growth Index (SGI) fell 1.1% m/m in July, and was also down 1.1% y/y. No wonder global commodities are so weak. The most recent 18 months have been much weaker than the 2011-13 period. Even if we adjust our SG I upward (for too-little representation of Services — lack of data), we believe actual economic growth in China is far below the official 7.0% y/y. And, it is not improving, Most worrisome to us; the ‘equipment’ portion of Plant & Equipment spending is very weak, a bad sign for any company or country. Expect more monetary and fiscal steps to lift growth.”

A recession under way in China would explain the collapse of most industrial commodity prices (especially oil), and raise the risk of a global “recession” (usually defined as GDP growth slower than 2%). Fortunately, they are probably wrong about China’s current GDP. Such a fast slowing from 7% to -1% would create economics shocks impossible for even China’s government to hide. Like massive layoffs.

I believe their index shows the rising stress in China’s economy. See this anecdotal evidence in The Guardian: “China’s workers abandon the city as Beijing faces an economic storm. Labour disputes are rising and some workers are leaving for the country amid fears a crashing economy could cause political and social unrest.” However, I believe their underlying story is almost certainly correct: most estimates of China’s future growth are delusionally optimistic.

A recent paper by two eminent Harvard economists provides a more realistic forecast of much slower growth — which implies real recessions (falling GDP) for China, instead of just growth slowdowns. This is also likely for India. That would remove the steady wind that has helped power the world economy since 1990, with no obvious candidates to replace them as economic locomotives.

The top line in the below graph shows the common forecast that China will rule the 21st century, as its 6% or 7% GDP growth makes them number one. US GDP is almost $17 trillion, and growing at 2 – 3%, so China will equal us in roughly 10 years — if they can sustain such a high rate of growth. A transition to a slower rate of growth would change the world; doing so (as often happens) by a recession would rock the world.

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Ten years after Katrina: let’s learn from those predictions of more & bigger hurricanes

Summary — Most 10-year anniversary articles about Katrina omit one chapter of that sad story: its exploitation by climate activists. They predicted more and stronger hurricanes. Let’s grade them. Every time activists falsely cry “wolf” we become weaker, less able to prepare for real threats. Remembering is the first step to learning.

“Sooner or later, everyone sits down to a banquet of consequences.”
— Attributed to Robert Louis Stevenson.

Eye of the hurricane

Contents

  1. Katrina and Wilma hit America.
  2. Alarmists exploit the disaster.
  3. Hurricanes go MIA.
  4. Forecasts of  hurricanes.
  5. Conclusions.
  6. For More Information.
  7. A book recommendation.

(1) Katrina and Wilma hit America

The 2005 hurricane season was the most active on record by many measures. Ten years ago today Hurricane Katrina almost destroyed New Orleans (details here). Hurricane Wilma hit in Florida on 24 October 2005 (among the most powerful ever recorded in the Atlantic basin).

(2)  Alarmists exploit the catastrophe

Climate alarmists exploited this disaster. For example see Al Gore’s speech at Sierra Club’s National Environmental Convention and Expo in San Francisco on 9 September 2005 — excerpt…

“Winston Churchill, when the storm was gathering on continental Europe, provided warnings of what was at stake. And he said this about the government then in power in England — which wasn’t sure that the threat was real — he said, “They go on in strange paradox, decided only to be undecided, resolved to be irresolute, adamant for drift, solid for fluidity, all powerful to be impotent.” He continued, “The era of procrastination, of half measures, of soothing and baffling expedience of delays, is coming to a close. In its place we are entering a period of consequences.”

“Ladies and gentlemen, the warnings about global warming have been extremely clear for a long time. We are facing a global climate crisis. It is deepening. We are entering a period of consequences.

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We don’t need a new army to fight modern wars, we need a smart one

Summary;  Our long war goes badly, as the flames of Islamic revolution spread following our failures in Iraq, Afghanistan, Yemen, and Libya. Some ask if the US military can cope with the challenges of fourth generation war. Here Gary Anderson (Colonel, USMC, retired) gives an answer.

USMC logo

 

We Don’t Need a New Army to Deal with Fourth Generation Foes;
we need a Smart One

By Gary Anderson (Colonel, USMC, retired)

One of the primary fallacies regarding Fourth Generational Warfare (4GW) is that the United States must totally retool its force structure to deal with this emerging evolution in warfare; this is not the case. 4GW means that foreign and domestic non-state actors are challenging the monopoly that nation-states have enjoyed on the application of force since the end of the Thirty Years War. That does not mean that war between nation-states has become obsolete.

The fact that the United States enjoys a temporary overmatch against most plausible conventional foes has not made traditional warfighting a thing of the past. Some potential American foes intend to combine a combination of conventional and unconventional warfare in any conflict with the United States in a concept known as hybrid warfare. However, any hybrid war will probably begin with a conventional stage, and only go hybrid if America’s enemy perceives that it is losing.

The United States would be ill-advised to sacrifice its technological edge to prepare to fight low-end 4GW opponents for two reasons. First, success in 4GW is primarily a matter of operational art, particularly in the application of counterinsurgency and counterterrorism principles. There is no special technological or force structure formula for 4GW warfare. Each situation will be unique and the studied application of task organization to meet the terrain and situation will be a key to success.

The primary difference between 4GW and traditional insurgencies is that insurgencies generally have the objective of replacing one form of government with another in a specific country. Many 4GW actors are transnational and look to control a region regardless of existing borders. In that; ISIL, Boko Harem, and to a lesser extent Islamic Courts (al Shabab) do not recognize traditional largely colonial drawn international borders. However, the tactics that they initially use more resemble the classic first two stages of insurgencies with terrorism being used as an early tool.

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Who will get hurt from the next stock market crash? Not just investors…

Summary: There is an exception to Saturday’s post, which said that a stock market crash would have only minor economic effects on America. Just as an oil crash hurts oil producing regions, such as Texas, a stock market crash hurts areas that produce stock certificates. Printing this “paper” is the most profitable part of the San Francisco Bay economy, putting it in the cross-hairs for the inevitable crash.

Stocks Crash

Sector crashes often harshly affect industries and regions even when the national impact is minor or even beneficial. An oil bust hurts not just oil exploration and production companies, but also regions focused on that industry (e.g., Texas) — while helping everybody else. Similarly a stock market crash will hurt companies that trade stocks (brokerage firms) and those that print stock certificates (Tesla Motors) — and areas that manufacture stock certificates, like the San Francisco Bay Area.

Silicon Valley and the entire Bay area form a 21st century version of a gold rush. Money floods in and fortunes are made — but instead of exporting pretty rocks it exports papers promising future riches. This should be obvious by now. I walk through the details in these posts…

These industries will not disappear, any more than finance did after the 1970s crashes, or the oil industry did after the 1980s bust. But the people in these industries and the areas in which they cluster will suffer from the fall to Earth (except those people at the top, and those who got in early).

The fall can be quite far. Here’s the price graph of the iShares Nasdaq Biotechnology Index (Symbol IBB), as it rose from $80 to $340 in five years. Try not to see the bubble when you look at it (that requires an investment professional’s eye). Do not ask how many of its 145 constituent stocks are profitable. The ETF’s profile is here.

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Update: only 16 months until the destruction of America by pollution!

Summary: We can learn much about modern America by looking at past predictions. Unlike today’s news, we not only can assess their accuracy, but also their reasonableness as forecasts when they were made. We now have 50+ years of predictions from Left and Right, mostly designed to frighten us into obedience. Let’s remember and learn from them. This post looks at a small but entertaining one, typical of its time, about the terrifying America of 2017.

“Priorities must be established, or this might be the end for Earth as we know it.”
— Memo to the President by media magnate Glenn Howard (played by Gene Barry) in “LA 2017”.

 

Some things never change. That’s a lesson from watching the TV show “L.A. 2017”. Directed by the 24-year old Steven Spielberg, it aired on 15 January 1971 as an episode of The Name of the Game. It described a horrific world 46 years in the future (2017), after pollution had destroyed the Earth’s ecology and forced the remnants of humanity to live underground.

In this version of 2017, Los Angeles has one cow; its milk is a delicacy for the rich. For more about the plot see this.

It was written by Philip Wylie, a science fiction writer with a successful specialty in doomster stories about nuclear war and ecological doom. He novelized it as Los Angeles: A.D. 2017. See a review here.

While Hollywood worked to terrify the public into action — it was aired before the second anniversary of Earth Day — real policy experts had been working for decades to end the polluting of America. The key regulations had already been enacted when “LA 2017” was first broadcast, and many more have been enacted since then.

The Federal Water Pollution Control Act of 1948 began the long process of cleaning America’s waters, with major amendments enacted in 1961, 1966, 1970, 1972 (a complete revision), 1977, and 1987. The Clean Air Acts of 1955, 1963, 1967, and 1970 had broken the back of that problem; subsequent amendments in 1977 and 1990 — and Obama’s proposals — have continued this progress. The Environmental Protection Agency opened shop on 2 December 1970, and has accomplished great things in its brief history.

The improvement in America’s environment since 1960 is amazing, a public policy accomplishment we can take pride in — and a rebuttal to those who disregard American history to claim that government seldom (or never) does anything good at home.

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Answer to “Why Has The Government Stopped Reporting Lake Mead Water Levels?”

Summary:  Zero Hedge gives today’s example of an ominous trend. The manufacturers of clickbait thrive while journalists are fired and the revenue of newspapers evaporates. They provide a dramatic mixture of fact and fiction, optimized for specific tribes of Americans. Worse, our diminished interest in telling fact from fancy creates audiences for fringe politicians (promoted by clickbait manufacturers) — the kind of people who shouldn’t be allowed near the controls of a great nation.  {2nd of 2 posts.}

Manipulation

 

Zero Hedge breaks a big story: “Why Has The Government Stopped Reporting Lake Mead Water Levels?” And they point the finger: “In the spirit of data obfuscation a la China and Obama, Lake Mead’s daily reporting has not been posted for six (6!) weeks.” As evidence they go to the private website the “Lake Mead Water Database“.

Update: on the morning of day two, Zero Hedge’s allegation has already has been repeated on 5,500 websites (hundreds of tweets). It will echo through the right-wing internet for weeks.

Through the magic of Google in fifteen seconds I found the Bureau of Reclamation website giving daily water levels through yesterday. And, for a better perspective, the monthly water levels from February 1935 to July 2015. Unfortunately, the truth will never catch up with this lie — and American’s trust in the US government erodes away one particle more.

For fun I suggest scrolling through Zero Hedge’s headlines to see what wing-nuts are worrying about these days. Enemies everywhere. Conspiracies behind every door. Markets are crashing or about the crash, always. The government is broke, with a rising tide about to overwhelm America. Then there are Zero Hedge’s really weird headlines…

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Stratfor sees good news in Syria: a possible win for Russia’s diplomats

Summary: This analysis by Stratfor shows the complexity of the situation in Syria. While we seek to influence events with bombs and proxy armies (two of America’s trinity of COIN), Russia uses diplomacy. So far our efforts have failed. There are signs Russia’s diplomats might be succeeding.  {1st of 2 posts today.}

Stratfor

Opportunities for Change in Syria

Stratfor, 19 August 2015

Stratfor receives insight from many sources around the world, along with reports not available for public consumption. It is important to caveat that many reports are unconfirmed or speculative in nature, though they provide valuable context. Interpreting information and compiling multiple data points to build a picture is part of intelligence analysis. Any and all reporting is carefully filtered before being disseminated by Stratfor, yet some insight is worth sharing on its own merits, such as this account from Syria, below.

Russia is heavily invested in the Syrian conflict and has a significant stake in shaping any enduring peace. Stratfor sources indicate that Moscow may have finally been able to get Damascus and the mainstream rebel opposition to broadly agree on elements of a political transition of power in Syria. Russia has long insisted that present Syrian President Bashar al Assad must remain in power during any transition. This is a sticking point for many of the rebel groups, but Moscow appears to have been able to negotiate a middle ground. As Stratfor previously noted Aug. 7…

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