U.N. BOOSTS 2020 WORLD TRADE FORECAST. The volume of global trade this year will fall 5.6 percent from 2019’s level, according to the U.N. Conference for Trade and Development (UNCTAD), not the 9 percent plunge the group had predicted previously.
The drop is the second largest on record, behind 2009’s 22-percent crash when the Great Recession held the world in its grip.
However, the economic output of the world’s service sector will dive a record 15.4 percent in 2020 to a level not seen in more than 20 years, UNCTAD said, due in large part to the loss of tourism, travel, and restaurant dining.
During the worst of the Great Recession, the trade sector’s value fell less than 10 percent.
The effects of the global economic shutdown and healthcare crisis have been so extreme that UNCTAD had to revise its methods of gathering and analyzing data, the agency said in a statement accompanying the revised forecasts.
China will be the only major economy to expand this year, already sustaining strong growth in manufacturing and exports, with strong global demand for electronics and medical equipment.
TREND FORECAST: As per one of our Top Trends for 2020, the 21st century will be the Chinese century. As most of the rest of the world sinks into the Greatest Depression, China’s industrial production spiked 7 percent year on year in November.
And despite the so-called “trade war” with China that the mainstream media and politicians keep hyping, their exports rose 21.1 percent in November, pushing its trade surplus up to its highest level on record.
And while unemployment rates have spiked across the globe since the COVID War broke out in China on Lunar New Year this past January, China’s unemployment rate edged down to 5.2 percent in November… the same level it was in last December.
CHINA’S CAR SALES CRUISING. Passenger car sales in the world’s largest auto market grew 8 percent in November year on year to 2.1 million, according to a news release from the China Passenger Car Association (CPCA).
The gain followed an 8-percent rise in October.
Honda’s sales in China jumped 22 percent last month, it reported; Nissan noted a 5.2-percent gain. Dealer orders for so-called “new energy vehicles” soared 128 percent to 180,000 units.
A $4,300 EV built by Wufing, a General Motors joint venture, led the list with 36,070 sold. Tesla’s electric Model 3 ranked second with 21,604 sales, a 78-percent gain from October.
Sales are rising not only because other sectors of the country’s economy are doing well, but also because the Chinese government has eased limits on the number of units sold and is giving subsidies to buyers.
Also in November, the Chinese government gave permission to Tesla to sell its Shanghai-made Model Y on the mainland, beginning in 2021.
For the year, 2020 auto sales will lag 2019’s by 7 percent, the CPCA has predicted, but it also expects sales to grow by that amount next year.
GLOBAL RECOVERY: THREE YEARS AND COUNTING. The world’s economy will need at least two, and possibly three, years to recover to pre-pandemic performance levels as emerging nations climb slowly out of the wreckage of the financial crash imposed by the global economic shutdown, David Malpass, World Bank president, commented on 8 December at the Wall Street Journal’s CEO Council.
Developing nations will recover more slowly because both tourism and remittances sent home from citizens working abroad were cut to a trickle during the shutdown and will return at a modest pace, he said.
“China is in recovery and that helps its neighbors, so in Southeast Asia, there has been more of a recovery underway that extends to Japan,” he noted. “For other developing countries, advanced economies are the most important variable because that’s often where their markets are.”
The chaos of the past 10 months has cast 100 million people around the world into poverty, Malpass noted.
TREND FORECAST: In recorded history, never have billions been locked down and hundreds of millions of businesses been forced to stop doing business as they have to fight the COVID War.
It should be noted that when the War began, the mainstream media kept pumping the mirage of a “V”-shaped recovery, then, as conditions worsened, they began selling the “U” and “K” shape recovery patterns.
We disagree with the World Bank. We maintain our Top Trends for 2020 forecast, the “Great Depression.” There will be short-term economic spikes as economies temporarily rebound from their COVID War lows, but the devastating lockdowns, which are again being imposed by governments, will sink both developed and undeveloped nations deeply into the “Greatest Depression.”
When the reality of the “Greatest Depression” sets in and government stimulus is no longer boosting it up, high-flying equity markets will crash around the world.
EUROPEAN CENTRAL BANK EXPANDS STIMULUS PROGRAM. Europe’s central bank added €500 billion to its budget for buying government bonds, raising its total bankroll to €1.45 trillion and extending the emergency program by nine months until 1 April 2022.
The bank also unveiled new loan programs for businesses, eased terms for existing loans, and left its benchmark interest rate at -0.25 percent.
The additional measures boost the bank’s stimulus investment above €3 trillion, which is equivalent to about $4.63 trillion.
With the additional stimulus, the European Central Bank (ECB) will underwrite 75 percent of the debt Eurozone countries take on in 2021 to fund jobs programs and make cheap loans to their businesses, according to an estimate by Pictet Asset Management.
“This is carte balance for finance ministers,” Commerzbank chief economist Joerg Kraemer said to the Wall Street Journal. “The ECB is likely to de facto finance the entire 2021 budget deficits of the euro countries.”
France, Germany, and other European countries announced plans to tighten social and economic restrictions as the COVID virus remains out of control across much of the continent.
Britain’s new restrictions were blamed for slowing economic growth to 0.4 percent in October after September’s 1.1-percent expansion.
The new restrictions will push Europe’s economy back into recession in the current quarter and restrict 2021’s growth below previous expectations, warned ECB president Christine Lagarde.
Vaccines’ distribution is cause for hope but “it will take time until widespread immunity is achieved, while further resurgences in infections, with challenges to public health and economic prospects, cannot be ruled out,” she said.
Also, the euro’s strength against the dollar is making Europe’s goods more expensive around the world, hobbling the economic recovery in manufacturing and trade.
The ECB’s additional stimulus was widely expected. Some critics were disappointed that the program’s expansion was not larger, fearing the recovery would continue to lag.
While the ECB was unveiling its additional measures, Eurozone nations agreed to a separate €750-billion rescue fund last week.
EUROPEAN UNION FINALIZES MAJOR ECONOMIC RESCUE PLAN. At a two-day summit ending 10 December, member nations of the European Union (EU) inked a €1.8-trillion budget agreement that includes €750 billion in loans and grants for EU countries struggling in the aftermath of Europe’s economic shutdown.
The €750 billion will, in effect, transfer money from richer nations to poorer ones to even out the economic recovery across the union. A recovery that left behind southern nations, whose economies depend more heavily on services and tourism than those of northern countries, would strain the EU, perhaps to the point of breaking it apart, analysts have said.
Of the €750 billion, €390 billion will be given as outright gifts to the hardest-hit countries. Under the plan, Bulgaria and Croatia will receive grants equivalent to 10 percent of their pre-pandemic GDP, Greece 9 percent, Portugal 5.4 percent, and Spain 3.4 percent.
The agreement does not give the EU power to control how countries spend the loans and grants.
Even though the €750-billion rescue fund is temporary, “it will permanently alter the way we think about the instruments that Europe has at its disposal in a crisis,” Lucas Guttenberg, a senior research fellow at Germany’s Jacques Delors Institute, said to the Financial Times.
The summit also laid the groundwork for a future agreement among member countries around climate-related goals and created the EU’s new seven-year budget.
TREND FORECAST: Central banks will continue to pump digital money backed by noting and printed on nothing into their economies. While it will artificially boost growth temporarily, it will in effect devalue currencies which will in turn push gold, silver, and Bitcoin prices higher as investors seek safe-haven assets.
CENTRAL BANKS KEEP BUYING BONDS AS DOUBTS GROW. The U.S. Federal Reserve, Bank of England, Bank of Japan, and the European Central Bank (ECB) have bought $5.6 trillion in government and corporate bonds in 2020, Bloomberg Economics reported, and the European bank is likely to add another €500 billion euros to its bond-buying budget when it meets on 17 December.
With interest rates already cut as low as central banks believe practical, bond-buying is one of the few tactics the banks can employ to spark their national economies.
The massive bond purchases drive down interest rates, artificially lubricate markets with cheap money, and make loans affordable for many businesses that otherwise might not survive.
This program of “quantitative easing” (QE) has been underway since the Great Recession and shows no signs of slowing, despite critics’ claims that the strategy is losing its usefulness.
“QE works particularly well during periods of market disturbances, but it won’t be able to do much at this point for growth and inflation in the absence of fiscal policy,” meaning more government stimulus spending or tax cuts, Peter Praet, former ECB chief economist who fashioned the European Union’s QE program that began in 2015, told Bloomberg.
“Further asset purchases by themselves may be less effective in providing additional stimulus,” absent an interest-rate cut, Bank of England Michael Saunders said in the public statement quoted by Bloomberg.
The U.K.’s central bank has set interest rates at 0.1 percent but is considering pushing it down into negative numbers.
Also, the nonstop bond-buying spree could have unintended consequences, according to Lawrence Summers, former U.S. Treasury secretary, and former Council of Economic Advisers chair Jason Furman.
“How much investment would be done at a 0-percent 10-year Treasury rate that would not be done at a 1-percent 10-year Treasury rate?” they mused in an essay for the Brookings Institution. “The consequence [of ongoing QE], if not compensated for by more active fiscal policy, would be longer and more severe recessions.”
As we have noted, rock-bottom interest rates that extend far into the future break the link between risk and reward, encouraging speculators to use central banks’ cheap money to make risky bets with only a casual consideration of possible losses.
ECB figures from 2019 argue that the bank’s QE program added 0.3 percent to Europe’s economic growth rate in 2016, 2017, and 2018.
But the gap is growing between central banks’ perception of QE’s effectiveness and its growing number of skeptics.
“To me, QE has become a cop-out,” Daniela Gabor, an economics professor at the University of the West of England, said to Bloomberg. “It’s a way of introducing incremental changes in the monetary toolbox without really transforming how central banks and treasuries [respond] to economic challenges.”
TRENDPOST: Central banks’ reliance on bond-buying is likely to continue unabated, despite the growing number of voices citing the practice’s risk.
In the recent past, U.S. stock markets stumbled briefly when uncertainty flared over whether the U.S. Federal Reserve would curtail its bond-buying plan. With markets blissfully floating on the Fed’s open-ended promise of cheap money, any change to policy would risk a market plunge, a prospect U.S. economic managers are loathe to confront, at least until an economic recovery can stand strong without QE as a crutch.
AUSTRALIA AUCTIONS NEGATIVE-INTEREST T-BILLS. For the first time, Australia’s government has issued debt that carries a negative interest rate.
On 10 December, the nation’s treasury auctioned A$1.5 billion worth of t-bills averaging yields of 0.01 percent, although some bidders secured a -0.1-percent rate.
The Royal Bank of Australia cut its base interest rate to 0.01 percent on 3 November. However, the negative yield is largely a result of demand for the bonds as Australia’s dollar rises against the U.S. currency, not of policy decisions by the bank or the government, analysts said.
The auction drew five times more bidders than could be accommodated, according to Australia’s Office of Financial Management.
With Europe, Japan, and other nations maintaining negative interest rates, investors possibly saw Australia’s bonds carrying positive rates as especially attractive, economist Shane Oliver at the AMP financial company, told the
Financial Times.
Investors also see the short-term government securities as a “super safe defensive asset” for weathering uncertainties about COVID vaccines’ deployment and effectiveness, Britain’s Brexit mess, and worries about the global economic recovery, Andrew Ticehurst, an economist at Nomura bank, said to the Times.
The Australian dollar reached a two-year high of $0.75 to the U.S. dollar on 10 December as the country sees its economy rebounding from the summer’s shutdown.
The rebound relies, in part, on China’s surging manufacturing sector. Prices for iron ore, for which Australia is China’s chief supplier, have reached levels not seen since 2013.
Globally, more than $17.8 trillion of government debt yields negative interest, Bloomberg reported.
CANADA’S CENTRAL BANK MULLS INTEREST RATE CUT. Canada’s central bank may cut interest rates below the current 0.25 percent, which it has previously said is the “effective lower bound” for rates.
The bank gave the hint in a 10 December speech by Paul Beaudry, one of the Bank of Canada’s deputy governors.
The bank has bought about C$1.80 billion worth of bonds since March, proportionately about a third less that the U.S. Federal Reserve or Bank of England, and the purchases “have had their intended effect,” he said.
The country’s 9-percent growth in this year’s third quarter was only slightly below the bank’s expected 10-percent mark, driven in part by rising global demand for commodities.
However, the COVID virus’s enduring strength may “scar” Canada’s economy by putting an end to thousands of businesses already struggling, Beaudry warned, adding that the country might “need an extra push to help the economy get back.”
The virus will continue to hamper economic expansion through the first part of 2021, with Canada’s economy returning to pre-pandemic strength sometime in 2023, he predicted.
“We have another six months or more to get through before” the economy can right itself, he said.
If the nation’s economy worsens, “we have a range of options at our disposal to provide additional monetary stimulus,” he said. Those include printing more money so the bank could buy more government bonds, buying other debt, and “reassessing the effective lower bound, which would allow for the possibility of a lower, but still positive, interest rate.”
The bank previously has held that any interest rate lower than 0.25 percent, especially a negative rate, would cause disruptions in financial markets that would outweigh the benefits of any resulting stimulus.
However, the Royal Bank of Australia and other central banks recently have broken down through their previously-set interest rate floors with little obvious harm resulting, apparently giving the Bank of Canada more confidence to lower its own rate.
Still, Beaudry held firm on the bank’s dark view of negative rates.
“In theory, negative interest rates remain in the bank’s tool kit,” he said. “But, barring a dramatically different set of circumstances, we don’t think negative rates would be productive in a Canadian context.”
The bank expects to hold interest rates at current levels until at least 2023, he said.
At their 9 December policy meeting, the bank’s governors admitted the COVID virus’s persistence has damaged the nation’s economy more than policymakers had expected, but the arrival of vaccines promise a turn for the better.
The governors left the bank’s interest rates and economic aid programs unchanged.
TREND FORECAST: As with most other central banks and politicians, i.e., policymakers, when the COVID war broke out, the word on the Street was the lockdowns and economic damage would be temporary and, “It will come back.”
Now, as a sub-note, they brush off a line that the damage to the economy is more than they expected. Therefore, considering the inaccuracy of their initial forecasts, it is evident that they are blinded by the future.
Yes, the vaccines will boost economic growth, but only temporarily. Yes, employment numbers will rise as people go back to work, but new jobs won’t be created and the hundreds of thousands of businesses across the globe that have shut down will not come back.
SWEDEN GOING DIGITAL CASH. With the country’s businesses expected to no longer accept paper cash and coins by 2023, the Swedish government has launched a formal study of the process by which the traditional krona can be replaced by a digital version.
The study, chaired by a former head of Sweden’s central bank’s finance committee, will be completed by December 2022, financial markets minister Per Bolund told Bloomberg.
The digital krona will be issued as soon as the study is completed, he said.
The study follows a test of the country’s “Central Bank Digital Currency” earlier this year. This version of an electronic krona was built on the same blockchain technology used by Bitcoin and many other cryptocurrencies.
Sweden already is among the world’s most cashless countries, having introduced a national mobile payment system in 2012. Fewer than 20 percent of the country’s retailers still accept paper money and metal coins, officials estimate.
TREND FORECAST: As we had forecast, world governments will go from dirty cash to digital trash and, of the major nations, China will lead the charge.
Just as easily as the masses obediently obeyed their masters and marched off to the COVID War, so, too, as more nations introduce digital currencies, they will readily accept them.
Of course, in a digital world, governments will know who spent what where thus enabling them to steal every penny they can from the workers of Slavelandia in the name of taxes.
Moreover, the trend toward digital trash is also a factor driving up gold and silver prices, as investors seek hard currency safe-haven assets.
The going-digital trend will also prove bullish for cryptocurrencies, particularly for younger generations who live in a digital world and are fearful of an economic future of worthless money.
