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Where is Global Economic Growth?

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Where is Global Economic Growth?

Remember the stagflation years? Maybe the current world economic environment is just in an enduring lethargy awaiting the bottom to fall out. Seldom has flat performance lingered as long as it has. Meaningful expansion, under a zero interest rate strategy has failed. Even much lower oil prices have not jump- started the engine of growth. Prospects for an upturn and a return to producing constructive activity still seem to be years away. Or is this a permanent outlook that baffles business executives and frustrates creative entrepreneurs. For the rest of us, waiting and hoping for a viable economy has become wishful thinking at best.

The WSJ reports, Lagging Growth Plagues Economic Policy Makers.

“Many of the largest emerging markets are slowing or contracting, even before the potential shock waves expected if the Federal Reserve starts raising interest rates. Other risks—a potential Greek default and eurozone exit, financial bubbles, the Ukraine-Russia standoff and China’s slowdown—are drawing increasing worry as policy makers hoped to build momentum for measures to finally boost global growth prospects.

“The world economy is not out of the woods,” said Agustín Carstens, Mexico’s central bank governor and chairman of the IMF’s policy-setting committee. He said easy-money policies that policy makers backed to help pull the global economy out of the 2009 recession have led to more risk-taking in financial markets than in the real economy, an imbalance that made him uncomfortable.”

More from the Journal in G-20 Warns of Threats to Global Economic Recovery.

“Renewed G-20 support for easy-money policies—essentially backing currency depreciation as a tool for promoting growth—underscores concern about the global economy getting stuck in a low-growth rut. It also marks an implicit acknowledgment of the failure across the globe to enact longer-lasting structural overhauls to major economies after years of relying on short-term spending and other temporary stimulus programs.”

Maintaining the same easy money policy for favorite friends, while starving small business or charging usury rates on personal loans is a formula designed to prevent productive business ventures and much needed consumer spending after years of tightening one’s belt to the point of continuous discomfort.

Revealing the intent to devalue currencies is a guarded way of saying that prices on essential goods and services will rise, while the purchasing power of one’s money will buy less. Anyone who shops knows this is the same pattern that has been with us for years.

Compare reality to the prognostication out of the World Bank in Global Economic Prospects to Improve in 2015, - “After growing by an estimated 2.6 percent in 2014, the global economy is projected to expand by 3 percent this year, 3.3 percent in 2016 and 3.2 percent in 2017.”

Even the belly of the beast acknowledges not all is rosy.

“Risks to the outlook remain tilted to the downside, due to four factors. First is persistently weak global trade. Second is the possibility of financial market volatility as interest rates in major economies rise on varying timelines. Third is the extent to which low oil prices strain balance sheets in oil-producing countries. Fourth is the risk of a prolonged period of stagnation or deflation in the Euro Area or Japan.”

So where is this projected growth over the next few years going to come from? Looking to Asian economies for salvation just does not square with sentiment that covers this region. Positive spin given to global economic outlook by WTO, IMF isn't justified offers this viewpoint.

“It is often said that healthy trade flows help the global economy go round. The general pattern for decades has been trade expansion far outstripping global growth, but this has all unravelled in recent years as economic downturn, financial turmoil and geopolitical risks have all taken their toll. Global trade flows are barely keeping pace with world GDP growth.”

Prepare for the big push to sell the fruits of increasing international trade with the recent news and announcement on “fast track authority”. However, Parsing the Trans-Pacific Partnership agreement reveals the facts that you are being told to ignore or dismiss.

“In truth, the American economy will suffer severely.  This is because the TPP will hammer two main drivers of economic growth – domestic investment and “net exports.

Domestic investment will fall because the TPP will push even more American factories offshore to Asia.”

Now analyze this outlook and factor in that domestic disposable income is still sinking. Where is the purchasing power going to come from to ramp up significant growth? The rest of the world may well trade more among their own trade alliances, but how can the United States benefit when “the Administration has publicly identified increasing offshore investments by U.S. companies as a top TPP goal”, as stated in the same Hill article?

It looks like the main benefit of a temporary strong dollar will generate even more offshore acquisitions by corporatists to finish off the de-industrialization of America. So where is the purported much valued growth supposed to come from?

Up to this point, the serving of untenable current debt obligations has not even been factored into the equation. Growing one’s way out of debt has always been a valid strategy, but the circumstances intended to diminish wealth producing economic activities impacts the ability to pay old indebtednesses, much less develop new healthy and mutually beneficial trade.

Commerce is a balancing act that needs to yield a reasonable gain and benefit for all parties. This standard no longer exists in the globalized transnational formula.

The United States has been on this internationalist path for decades and has been severely harmed over that period of time. Since the financial meltdown of 2008, the intensity of the loss in prosperity has expediently grown.

Looking to further monetary sophistry will never create the conditions for a thriving and growing world economy. Do not be deceived. Oppose the Trans-Pacific Partnership Economic Enslavement and the Transatlantic Trade and Investment Partnership Betrayal, before the only growth will be reflected in a negative balance of trade totals.

James Hall – April 22, 2015

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