Steady decline of oil tells a deeper trend line

As we put the final touches on the fall 2014 edition of the Trends Journal, the markets were beginning to show significant declines and erratic performance. As we reported this summer, the decline in oil prices was a significant sign of economic weakening in some sectors. In fact, Brent crude was trading at the lowest price since 2010 in mid-October. In this question-and-answer session with Trends Research Institute staff, founder and director Gerald Celente provides insights into the oil cost trend and other emerging trend lines.

What were the main economic trends during the summer of 2014?
As US equity markets were hitting new highs, oil prices went on a steady downhill slide. And remember, this is during the peak driving season. After Brent crude hit $115 a barrel in June, as the Ukraine crisis heated up and Middle East tensions rose, oil prices began to steadily fall. And the moves were sizable, often down a dollar to two dollars a day. We noted this early on since I report oil prices along with the global equity markets and gold prices each weekday night on Trends in the News.

From the way oil was falling I concluded that, while supply was abundant — in part because of the US hydrofracking boom—the decline was neither a supply issue nor one of commodity market traders manipulating the market. It was a demand issue. While the data can be suspect — since most governments and agencies cannot be trusted to report accurate facts due to incompetence and/or deception — it was clear that the global economy was trending down.

Throughout Asia and Europe, economies are suffering from recession, depression or stagnation. And now — unlike at the onset of the Panic of ’08, when central banks around the world rapidly lowered interest rates and pumped trillions into the markets to prop them up — with interest rates at record lows and the money pumping schemes dried up, depressed oil markets are a true reflection of the depressed state of the global economy.

What is the significance of the sharp decline in residential property sales in China?
Since Communist China is a single-party nation and the government controls the economy and supplies the data, the true state of economic conditions there may be much worse than we know. And from what we do know, despite government stimulus programs and loose credit policies (which have helped push the debt-to-GDP ratio above 200 percent), the Chinese economy is trending toward recession.

Housing price increases over the past two years clearly signaled that a property bubble was being formed and, as with all bubbles, it was primed to pop. In 2013, for example, there was a 26.6 percent rise in nationwide contracted sales. By the first quarter of this year, home sales slumped 7.7 percent. According to some reports, there are over 70 million luxury apartments on the market that can’t be sold. With the property market accounting for some 20 to 25 percent of the mainland’s gross domestic product, as goes real estate, so goes the economy.

On the other hand, with the mainland real estate market slowing, the move toward outbound investments has accelerated “Global Chinatown,” one of the Top Trends for 2014 we had forecast. The Chinese have been on a buying spree with a massive spike in investments across Europe and around the world. In a clear sign of the times and of the Global Chinatown trend, the Waldorf-Astoria, New York’s “regal palace,” was sold to a Chinese insurance company in September for nearly $2 billion, among the highest prices ever paid for a hotel.

How are the wars and near-wars in Gaza, Ukraine, Syria and Iraq affecting global economies?
There is a reckless saying that many people repeat and some economists believe: “We need a major war to save the economy.” The typical rationale for such foolishness is that spending more on the military is good for the economy because it creates jobs. The oft-cited example is World War II as the catalyst that ended the Great Depression. Yes, in many ways that was true. With the entire nation at war and Rosie the Riveter working on the assembly line along with tens of millions on the factory floors and in the ship yards, America’s war economy boomed.

We live in a very different world. In this age of sophisticated manufacturing technology, only a relatively small labor force is required to make the weapons of war. And, the more advanced the weaponry, the greater the sums of money being funneled into R&D, which also requires a limited work force. Thus, with few civilians employed in the nation’s military-industrial complex, funds diverted from productive resources that could build economies (education, medical, healthcare, infrastructure, product development, high-tech, etc.) are instead being deployed for destructive purposes.

Take the United States, for example. Several trillion dollars has been spent on the Afghan and Iraq wars and the War on Terror over the past decade. Where are the new jobs and economic growth from the war economy? The evidence is clear. Whether it be in the US or Ukraine, today’s wars are draining wealth, restricting progress and depressing economic growth.

Do you see inflation rising in the months ahead?
No. In fact, the European Central Bank, for example, is attempting to stimulate the region’s economy to stop the deflationary cycle. Asset and commodity prices are dropping as supply outstrips demand. However, there are always the wild cards. A major war could create an inflationary spike in commodity prices, including oil. Wild weather conditions could drive up food costs.

The type of inflation I see most likely is through the devaluation of currencies as a result of the unprecedented money pumping schemes of central banks and the record low interest rates that have flooded the equity markets with cheap money. The weaker the currency becomes, the more it costs to purchase products and services.

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