US Economy: Unfilled jobs, unemployment and price rises show Biden's spending plans carry major risks - by W. James Antle III

We're a long way from the stagflation of those bad old days under President Jimmy Carter, with the economy growing at a brisk 6.4 percent annual rate as the world reopens and the pandemic recedes. Still, a recent spate of bad economic news in what should be a fairly robust recovery is a warning that President Joe Biden and congressional Democrats' approach to fiscal policy could reap negative unintended consequences.

Read more at: W. James Antle III: Unfilled jobs, unemployment and price rises show Biden's spending plans carry major risks

US Inflation: Accelerated in March Due to Strengthening Economy, Rising Energy Prices

U.S. consumer prices rose sharply in March as the economic recovery gained momentum, marking the start of an expected monthslong pickup in inflation pressures.

Some of the price increases reflected temporary factors, but others showed how demand for many goods and services is reviving a year after the coronavirus pandemic shut down large swaths of the economy, analysts said.

Read more at: Inflation Accelerated in March Due to Strengthening Economy, Rising Energy Prices - WSJ

Canada: Inflation rate eases to 1.4 % in Canada

Inflation rate eases to 1.4% in January as gas prices plunge

Read more at:
https://www.cbc.ca/news/business/inflation-rate-january-1.5035221

US Economy Is in Danger of Overheating and Exploding Into Financial Crisis - by Desmond Lachman

My long career as a macro-economist both at the IMF and on Wall Street has taught me that it is very well to make bold macro-economic calls as long as you do not specify a time period within which those calls will occur. However, there are occasions, such as today, when the overwhelming evidence suggests that a major economic event will occur within a relatively short time period. On those occasions it is very difficult to resist making a time-sensitive bold economic call.

So here goes. By this time next year, we will have had another 2008-2009 style global economic and financial market crisis. And we will do so despite Janet Yellen's recent reassurances that we would not have another such crisis within her lifetime.

There are two basic reasons to fear another full-blown global economic crisis soon: The first is that we have in place all the ingredients for such a crisis. The second is that due to major economic policy mistakes by both the Federal Reserve and the U.S. administration, the U.S. economy is in danger of soon overheating, which will bring inflation in its wake. That in turn is all too likely to lead to rising interest rates, which could very well be the trigger that bursts the all too many asset price bubbles around the world.

Read more: US Economy Is in Danger of Overheating and Exploding Into Financial Crisis | Economic Intelligence | US News

The Dow Jones Industrial Average is a totally meaningless figure, just like the Dow itself - here is why !

The first reason why stock market indexes, like the Dow, rise over long periods of time is that the indexe
s are not adjusted for inflation.

Inflation is when overall prices increase. It is a modern occurrence in most major countries. When there’s inflation, everything costs more as time passes, including the price of shares of stock
.
The Dow Jones index is calculated by adding up the non-adjusted stock prices of all 30 members and dividing by something known as the “Dow divisor,” which is continually adjusted to account for stock splits, spin offs and other changes. This divisor ensures historical continuity.

The importance of the long-term inflation in driving stock market indexes higher is seen by understanding the “rule of 70.” This rule shows how long it takes for the average price in the economy to double. For example, if something costs US$10 today, the rule of 70 shows how many years it will take for the price to reach $20. To determine the number of years, divide 70 by the inflation rate stripped of its percentage sign.

Since the turn of the 21st century, US inflation has increased prices by roughly 2.2 percent per year. If prices continue to rise at this rate, then the typical price of most things in the US will double roughly every 32 years (70 divided by 2.2). So if inflation were to persist at this rate, this means about three decades from now the Dow will hit 40,000, even if businesses sell the exact same number of cars, phones, movies, meals and all the other things available in the economy.

The second reason why the Dow inevitably rises over long periods of time is that under performing companies are periodically removed from the index and replaced by companies that are performing better.

Replacing under performing companies that have a falling stock price, with companies that have a rising stock price ensures the index continues to climb over the long term.

Charles Dow, one of the founders of the Wall Street Journal newspaper, started the Dow Jones Industrial Average in May of 1886.  His intention 120 years ago was not to create an index that regularly hit new highs. Instead, the goal was to give readers a single number to give them a quick understanding of how the stocks of the most important companies were faring.

Nevertheless, because the list of companies in the Dow has changed many times to eliminate under performing stocks, it is essentially designed, even if by accident, to climb ever higher.

The Dow for decades has been comprised of 30 stocks. Nevertheless, over its 120 year existence there have been 133 different companies on the list. The editors of the Wall Street Journal choose which companies are in the index and once a year, on average, add a new company to the list and drop an old one.

Since 2010, the Dow has included five new companies; Apple, Goldman Sachs, Nike, United Healthcare and Visa. To keep the list fixed at 30, five companies have been dropped: Alcoa, AT&T, Bank of America, Kraft Foods and Hewlett-Packard.

General Electric, or GE, is the only company that was both on the original 1886 list and included in the index today. Nevertheless, even this major company founded by Thomas Edison has not been on the list continuously. It was dropped in 1901 and then reinstated at the end of 1907.

Many famous companies in America were on the Dow and then were dropped before going bankrupt or drastically shrinking in size. Eastman Kodak was dropped in 2004, while Bethlehem Steel was removed in 1997, both only a few years before going bankrupt. The editors knocked off Sears Roebuck in 1999 and F.W. Woolworth in 1997 as people shifted away from buying items at department stores and five and dimes.

The periodic replacement of companies means the Dow operates like an actively managed mutual fund, in which humans pick companies that are expected to do well in the future. The Dow needs periodic human intervention. Without it, the list would slowly atrophy as companies die off or become less relevant to the overall economy.

In sum, the presence of inflation in the US and the continued efforts of editors at the Wall Street Journal to replace lagging companies in the index with companies that have high-flying prospects and stock prices will always result in headlines every so often that trumpet “turn-of-the-odometer” milestone.

Bottom-line:  Wall Street basically is a system of financial manipulation, some call it "a financial casino", used by smart financial brokers to get immensely rich, while keeping their clients happy, by providing them with returns on their investments, which are far below their own, but usually above the interest rates of Banking Institutions. The brokers themselves basically don't care if the stock market goes up or down, because they will earn money on shares sold or bought by their clients.  

If the stock market starts dropping rapidly, as it is doing now, and you are holding on to a large stock investment and have time to wait (usually several years)  leave it in, but if you are cash dependent or strapped, sell immediately. rather than going bankrupt.

EU-Digest

EU Economy: Every one of the EU's 28 member economies is growing simultaneously for the first time since 2007

QWuartz reports that the European Union is facing its biggest crisis since… well, since its last big crisis. The perpetually problematic union is threatening to come undone, with Britain in the process of quitting the bloc and numerous populist movements elsewhere also threatening to sever ties.

But economically speaking, the bloc is performing better than it has in a long while. For the first time since 2007, all 28 of the union’s member economies are growing at the same time, on an annual basis.

Inflation-adjusted GDP in the EU will rise 1.8% this year and next, according to the European Commission’s latest projections. This is expected to push unemployment across the region to its lowest rate since 2009. For its part, GDP in the euro zone has risen for 15 consecutive quarters.

This is not to say that Europe’s economy is thriving, which is readily apparent by how successfully populist politicians have been blaming Brussels for their countries’ apparent financial malaise.

The European Commission warns that the risks to its forecasts are “exceptionally large,” thanks to the unclear intentions of US president Donald Trump, high-stakes elections across Europe this year, and the ongoing Brexit negotiations.

If Trump follows through on pledges to spend big on infrastructure, it could provide a boost to the EU’s export-oriented members. But if he doubles down on his “America First” policy, it could harm transatlantic trade. Meanwhile, a messy Brexit, tighter monetary policy from the US Federal Reserve, and a shaky Chinese economy could all derail the European economy’s slow but steady recovery.

Pierre Moscovici, the European commissioner for economic and financial affairs, warned that the benefits of growth must be shared more widely—both between and within EU countries—for it to be appreciated by citizens. “With uncertainty at such high levels, it’s more important than ever that we use all policy tools to support growth,” he said. “Above all, we must ensure that its benefits are felt in all parts of the euro area and all segments of society.”

EU-Digest

The euro zone is marching along nicely, with ECB leading the way - by ERIC REGULY

euro-zone hanging in there

How many blows can the euro zone take before it collapses into a great, bleeding sovereign heap? A lot, apparently.

Every few years, indeed, every few months, the euro zone is written off as a failed experiment. Every monetary union since the Roman empire has blown up or simply faded away and the euro zone will be no exception, its detractors insist; just give it time. Nineteen countries running at 19 different speeds, with jobless rates ranging from 5 per cent to 25 per cent can’t possibly stick together.

The European Central Bank’s response on Thursday to waning inflation and growth seemed to prove the detractors right. Almost eight years after the 2008 financial crisis, the euro zone remains such an indolent economic sloth that the ECB actually invented a way to pay the banks to make loans to businesses and consumers. The novel scheme was part of yet another stimulus package, one that knocked interest rates to zero and boosted the ECB’s quantitative easing bond purchases to €80-billion ($118-billion) a month, that was flung on top of piles of stale stimulus packages that basically didn’t work.

The ECB’s new and seemingly desperate attempt to juice up the economy was an overreaction, although not massively so, and the euro zone is not as utterly hopeless as the headlines suggest. The euro zone may look like it’s dancing drunkenly through a field of land mines, never more than a stumble away from destruction. But the dance is not the suicide run it seems to be.

Take the Sentix Euro Break-up index. The index shows how investors rate the probability of a breakup of the euro zone (such as Greece hitting the road) within 12 months. The latest reading was 19.9 per cent, which looks pretty high. In comparison to previous peaks, it’s not. In 2012, at the height of the euro zone crisis, the index hit 70 per cent. Last summer, when Greece again taunted the euro zone with its exodus, the index reached 50 per cent. From the investors’ point of view, the breakup scare, while far from absent, is now relatively low.

More evidence that the euro zone is not doomed comes from the fairly strong growth rates in some countries and the rocket-like performance in a few. Ireland, which sued for a bailout in 2010, is taking on Celtic Tiger status again. Its gross domestic product grew a stunning 9.2 per cent, year-over-year, in the last three months of 2015, outranking India and China. Spain, the euro zone’s fourth-largest economy, grew 3.2 per cent in 2015. It, too, had been a basket case during the crisis.

Portugal, another bailout victim, eked out growth of 1.5 per cent last year. Greece, now grinding through its third bailout, remains the lone euro zone country in recession (Finland entered a technical recession last year, defined as two consecutive quarters of contraction, but is expected to bounce out soon). Italy is expanding painfully slowly, but managed to report good news on Friday: Industrial production in January jumped 1.9 per cent, month-on-month.

Over all, euro zone growth is not great, but it’s improving. The ECB expects growth of 1.4 per cent this year and 1.7 per cent in 2017. No crisis here. So what made the ECB president haul out the bazooka this week? His stimulus package was more aggressive than economists had expected.

In a word, inflation. Or more precisely, the lack thereof. In February, inflation turned negative, at minus 0.2 per cent compared with a 0.3-per-cent rise in January. Mr. Draghi wants headline inflation at close to, but not beyond, 2 per cent. But the figure seems arbitrary. There is no compelling rationale to argue that inflation of, say, 1.5 per cent or 2.5 per cent is inherently evil, and falling inflation rates are not always terrible to behold. 

In this case, they are largely owing to the collapse in energy and commodity prices in the last year and a half, which have given consumers extra spending power. If energy and seasonal food prices are excluded, “core” inflation actually rose by 0.7 per cent in February.

Inflation, in other words, hasn’t disappeared. The ECB expects more or less flat inflation this year, rising to 1.3 per cent in 2017 and 1.6 per cent in 2018, and those figures could prove conservative if oil prices, which have climbed by almost 50 per cent since January, keep rising. Mr. Draghi’s big, fat stimulus package seems more like an insurance policy than a panic response to a new crisis. There is no new crisis.

To be sure, the euro zone and the wider European Union face serious problems, from Britain’s potential departure from the EU to the refugee crisis. But Britain probably will vote to stay put and, even if it goes, the euro zone’s integrity would not be compromised since Britain doesn’t use the euro. The refugee crisis has not killed the EU’s passport-free zone, known as Schengen, in spite of endless predictions that it would. The loony populist parties of the far right and the far left have yet to form governments (Greece’s far left Syriza party wasn’t loony enough to ditch the euro). There is no war in the EU countries.

Growth and inflation are not dead. On the whole, the euro zone is in much better shape than it was three or four years ago, even two years ago. The new stimulus package is bound keep things moving in the right direction. For that, you can thank the ECB.

Read more: The euro zone is marching along nicely, with ECB leading the way - The Globe and Mail

Global Economy: Chilling ways the global economy echoes 1930s Great Depression era - by John Coumarianos

One view of what caused the Great Depression in the 1930s is that the Federal Reserve failed to prevent a collapse in the money supply.

This is the famous thesis of Milton Friedman’s and Anna Schwartz’s A Monetary History of the United States, 1867-1960, and it was, more or less, the view of Ben Bernanke when he was chairman of the Federal Reserve.

The global economy today resembles that of the 1930s in several ominous ways.

Financial author Edward Chancellor recently called attention to a paper written by Claudio Borio, head economist at the Bank of International Settlements, that provides a fuller picture of the causes of the Great Depression. The paper also draws parallels between global economic conditions that led to the rise of protectionism in the 1930s and our situation now.

Now, as in the 1930s, the global economy is stretched. A low interest-rate regime in the developed world has encouraged lending to emerging markets. Additionally, China’s and Europe’s banking systems are burdened with bad debts.

Moreover, last year, as Chancellor reports, emerging markets experienced their first capital outflows in nearly three decades, and that movement of capital appears to be continuing in 2016. Ratings agencies have downgraded South Africa and Brazil sovereign debt, while commodity prices continue to plunge.
Protectionism is in the air with the European Union and the U.S. imposing tariffs on Chinese steel. Also, anti-immigration sentiment is rising.

Although the additional restrictions imposed by a gold standard don’t exist today, the peg of Chinese yuan to the U.S. dollar DXY, +0.05%  is unsustainable in Chancellor’s opinion, as may be the euro EURUSD, -0.1617%

So much elasticity or the buildup of imbalances can be painful during the process of restoring balance. Therefore, regarding monetary policy, it’s important, according to Borio, to lean “against the build-up of financial imbalances even if near-term inflation remains low and stable.”

Borio’s paper was written in August 2014, so it’s difficult to know what advice he’d have for the Federal Reserve today. But in his paper, he notes that the imbalances that low rates and elasticity produce may “return us to the modern-day equivalent of the divisive competitive devaluations of the interwar years; and, ultimately, [trigger] an epoch-defining seismic rupture in policy regimes, back to an era of trade and financial protectionism and, possibly, stagnation combined with inflation.”

Read more: Chilling ways the global economy echoes 1930s Great Depression era - MarketWatch

US economy : S&P will plunge 75% on China deflation: SocGen bear - by Matt Clinch

A falling Chinese yuan will unleash a wave of global deflation that will send the U.S. into its next recession and pull the S&P 500 back down to 550 points, according to a strategist at Societe Generale.

Albert Edwards, the notoriously bearish analyst at the French bank, released a note on Wednesday in response to the recent currency devaluations by the People's Bank of China (PBoC).

This depreciation - with reports last week that it's far from over - is a result of an asset price bubble that the U.S. central backed helped to create, according to Edwards.

"(Quantitative easing in the U.S.) may not have done much to boost U.S. growth, but it certainly inflated global asset prices into the stratosphere," he said in the note thisWednesday January, 13, 2016.

"If I am right, the S&P would fall to 550 (points), a 75 percent decline from the recent 2,100 peak. That obviously will be a catastrophe for the economy via the wealth effect and all the Fed's QE hard work will turn (to) dust."
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Read more: S&P will plunge 75% on China deflation: SocGen bear