It's Official (Finally): The US Is No Longer The World's #1 Economy

It seems rather appropriate that just seven days after the US government hit a whopping $18 trillion in debt, mainstream financial media has picked up the IMF’s recent World Economic Outlook report, which puts the US economy as #2 in the world.

There’s no shortage of ostriches out there who come up with every reason in the world why this doesn’t matter.

They say, ‘oh the IMF is just reporting purchasing power parity.’ Or, ‘oh it’s the per capita GDP that it counts.’

But the obvious truth is that the US is in decline. And it’s being overtaken.

1,000 years ago when Europe was just a tribal backwater with local warlords duking it out over salt mines, Asia was the center of wealth, power and civilization.

That changed. The West overtook the East in terms of power and influence and it remained that way for centuries.

Now things are changing once again. The West, and the US in particular, is plagued by:

Insane debt levels, which the government has been accumulating at faster and faster rates, hitting an unprecedented $18 trillion in debt this past week.

Short-sighted monetary policy, from quantitative easing that has debased the currency to negative interest rates that have wiped out any reason to be smart with money.

A crippled economy, as Western nations’ oppressive taxation frightens away the productive, and handouts have created a society of dependency.

Global bullying, as the US spies on its own citizens and allies, compelling businesses and governments to terminate their relationships with the Land of the Free.

Waging endless wars, whether against nouns (‘terrorism’), plants (‘drugs’), and brown people on the other side of the planet who supposedly hate us for our freedom. If they only knew…

A population that lives in fear, as you are more likely to get shot by your own police in the United States today than to ever even see a terrorist.

It’s pretty hard to maintain the top spot when that’s what you stand for.

China obviously has its own substantial problems, but over the last several decades one thing is for certain - China (and Asia in general) is a place where production and savings are valued.

The universal law of wealth is to produce more than you consume. The West has completely broken that.

They’re trying to replace it with debt, war and intimidation. And we’re now only just starting to scratch the surface of the consequences that this brings.

History shows that every time this happens, governments in power will do anything they can to maintain the status quo and keep the party going just a little bit longer.

Do you have an obligation, simply by an accident of birth, to go down with the sinking ship?

Do you owe desperate politicians a greater share of your livelihood so they can blow it on even more war, police and spying?

Or is your primary obligation to your family and your loved ones?

The truth is that all the tools and all the resources exist to disconnect from this economic Hindenburg.

You can choose to either be an unwilling participant in its continued unraveling. Or, to be a curious spectator, having take steps to protect what you’ve worked your entire life to build. The choice is yours.

Sourced From : Simon Black via Sovereign Man blog,

Gold Tops $1200 As China Cuts, Draghi Jawbones

First Mario Draghi made some strong statements speaking in Asia that "it is essential to bring back inflation to target and without delay," which sent EURUSD tumbling BUT did not spark moves in the S&P 500 (though Gold slipped). It was not until the PBOC cut rates that the US equity market perked up and started ripping... along with gold and as the morning progressed, gold has kept going as it is clear the Central Banks of the world have only one policy left... (no wonder the Dutch want their gold back)

It appears that while Draghi's comments impacted European stocks (DAX surged)...

China Manufacturing PMI Misses, Slides To 6 Month Lows

For the 13th month in a row, according to Bloomberg data, China Manufacturing PMI missed expectations. Printing at a 6-month low of 50.0 (against expectations of 50.2), the most notable individual component was the slump in output to a contractionary 49.5 reading for the first time since May. New export orders (umm US decoupling?) also dropped. It seems after last month's idiocy (take a look at these charts for a good laugh), that Japan's Manufacturing PMI is also catching down to reality having missed expectations and dropped to 52.1. Chinese and Japanese stocks are tumbling after this data (with Nikkei 225 200 points off US day session closing levels).

13th miss in a row, 6 month lows...

As Output and New Export Orders eased...

Not pretty...

Time to demand some moar stimulus...

"New export order growth continued to ease and led to a below-50 reading for the output sub-index for the first time since May.

Disinflationary pressures remain strong and the labour market showed further signs of weakening. Weak price pressures and low capacity utilization point to insufficient demand in the economy. Furthermore, we still see uncertainties in the months ahead from the property market and on the export front. We think growth still faces significant downward pressures, and more monetary and fiscal easing measures should be deployed.”

The reaction...

Charts: bloomberg

Alan Greenspan: QE Failed To Help The Economy, The Unwind Will Be Painful, "Buy Gold"

It appears it is time for some Hillary-Clinton-esque backtracking and Liesman-esque translation of just what the former Federal Reserve Chief really meant. As The Wall Street Journal reports, the Fed chief from 1987 to 2006 says the Fed's bond-buying program fell short of its goals, and had a lot more to add.

Mr. Greenspan’s comments to the Council on Foreign Relations came as Fed officials were meeting in Washington, D.C., and expected to announce within hours an end to the bond purchases.

He said the bond-buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.

“Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” said Mr. Greenspan. Boosting asset prices, however, has been “a terrific success.”

...

He observed that history shows central banks can only prick bubbles at great economic cost. “It’s only by bringing the economy down can you burst the bubble,” and that was a step he wasn't willing to take while helming the Fed, he said.

...

The question of when officials should begin raising interest rates is “one of those questions I cannot answer,” Mr. Greenspan said.

He also said, “I don’t think it’s possible” for the Fed to end its easy-money policies in a trouble-free manner....

"Recent episodes in which Fed officials hinted at a shift toward higher interest rates have unleashed significant volatility in markets, so there is no reason to suspect that the actual process of boosting rates would be any different, Mr. Greenspan said.

...

“I think that real pressure is going to occur not by the initiation by the Federal Reserve, but by the markets themselves,” Mr. Greenspan he said.

And finally - while CNBC's audience is told what a terrible thing gold is, "The Maestro", having personally created the financial cataclysm the world finds itself in following a lifetime of belief in fiat, Keynesian ideology and "fixing" one bubble with an even greater and more destructive asset bubble, has suddenly had an epiphany and now has a very different message from the one he preached during his decades as the head of the Fed.

Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.

What Greenspan failed to add is that it is thanks to his disastrous policies (subsequently adopted by Bernanke and Yellen) that gold is the "place to put money."

Will the Fed turn off the QE tap? We'll find out Wednesday

Precious metals markets could be in for a wild ride this week, with the US Federal Reserve expected to wind down its third installment of quantitative easing. (QE)

The two-day Fed meeting starts Tuesday and at its conclusion, investors will know whether or not the central bank, led by chair Janet Yellen, will end the bond-purchase program that has been responsible for fuelling US stock markets, keeping interest rates low, and most important for mining – keeping the prices of precious metals buoyant since the program began in 2008.

Last December, on signs the US economy was moving out of recession and no longer needed as much economic stimulus, the Fed began winding down its monthly bond purchases from $85 billion, to its current $15 billion.

While an announcement to end QE would almost certainly be negative for gold and silver, and US equities that have become dependent on the low-interest-rate environment, there are signs that now may not be the best time to "take away the punch bowl" of cheap money. Fears of deflation, slowdowns in Europe and China are three of the biggest reasons for a possible continuation of QE. A raft of negative news this month has also roiled stock markets, ranging from unrest in Hong Kong to Iraq to Ebola.

Two weeks ago James Bullard, head of the St. Louis Fed, said the Federal Reserve should continue with asset purchases until the US economy shows more strength, telling Bloomberg TV: "We can go on pause on the taper at this juncture and wait until we see how the data shakes out in December."

The UK Observer pointed out that "midterm elections next month could see the Democrats lose control of the Senate and break an uneasy truce over economic policy. So the Fed may be only be a few meetings away from declaring that the US needs more QE and find itself delaying a rise in rates. More cheap money would cheer stock market investors."

Others at the Fed, however, think the central bank will stay the course. Boston Fed president Eric Rosengren suggested that when the Fed meets Oct. 28-29, it will likely end the program, unless US employment data looks poor enough for the Fed to consider changing its mind.

Whether or not the Federal Reserve chooses to continue easing, it seems almost certain that Europe will open its QE taps. 

"Figures next month are expected to show the eurozone contracting in the third quarter following stagnation in the second. Eventual ECB action looks inevitable," says the Observer. 

Earlier this month, the European Central Bank started purchasing French bonds in an attempt to revive the flagging eurozone.

The Fed has a habit of delaying difficult and market-moving decisions when it comes to QE. It certainly will be interesting to see which direction it decides to go and how the markets react.

150 Years Of Global Monetary Policy

While everyone debates if the Fed will, once again, be wrong in its forecasts about a rate hike cycle starting some time in mid-2015 (spoiler alert: it will be), we decided to take a look in the other direction.

The chart below shows the key global events that have influenced monetary policy for the 4 major legacy central banks: the US, UK, Germany and Japan since the mid-19th century. Because if there is one thing to "learn" from the history of monetary policy it is that there is nothing to learn from the history of monetary policy: after all, "this time is always different" when the voodoo priests in charge of it all try to make a bubble-blowing, kneejerk-response "science" out of something that only a mother could call art.

Source: Goldman

Markets React Violently To China's Stealth QE

From copper to high-yield credit and from stocks to bonds and gold, markets are reacting violently to the headlines from China that they are unleashing another 500bn Yuan "stealth QE"... everything is rallying.. except the USD (biggest drop since May).

US markets...

FX... USD's biggest drop since May!

with AUD and EUR bearing the USD weakness brunt...

Commodities are all surging...

Copper surges and halted...

Happy Birthday Lehman Bankruptcy: Silver +71%, Gold +61%, S&P +58%

Three charts... "The West is done, it's over! We screwed it all up. Do you want your great-grandchildren speaking Chinese?"

Market Performance (from the close before Lehman BK) - Silver +71%, Gold +61%, S&P +58%

Federal Reserve Balance Sheet - Plus $3.5 Trillion

And The Recovery? From 62% of the nation employed to less than 59%...

China Bad News & Scotland No News Send Futures Lower

While USDJPY is not moving much, no clear news from Scotland (GBP is modestly weaker) and an opposition win in Sweden (Krone weaker) along with China's dismal data (and Securities Journal note that no rate cut is coming anytime soon from the PBOC) sparked some significant selling in US stock futures at the open (-13 points). Treasury futures are modestly higher as S&P future are stabilizing around -7 points for now extending losses from Friday as AUDJPY slides...

US equity futures down notably...

seemingly led by AUDJPY weakness (AUD weakness and JPY unchness) on the back of China data

Charts: bloomberg

China Hits 'Inflow' Panic Button- Strengthens Yuan Fixing By Most In 4 Years

The PBOC strengthened the CNY fixing by over 0.3% today - its biggest fixing move since June 2010 as the Yuan strengthens to 6-month highs against the USD. This seeming 'panic' move comes on the heels of last night's record trade surplus - which as Goldman notes - was likely dominated by FX inflows thanks to over-invoicing. It is unclear the reasoning for the move in the CNY fixing but one wonders if, with industrial commodities continuing to plunge (CCFD collateral value dropping) and now PMIs rolling over, if further over-invoicing is being anticipated as cover for a notable slowdown in growth.One thing is clear - after today's surge in the USD and decoupling with US stocks, something is changing.

CNYUSD falls to 6-month lows (CNY strongest vs USD in 6 months)...

Seems the big jump in the fix was catching down to CNYUSD market movements (inflows following the SPL QE-lite news)...

According to Bloomberg, one trader noted,

CNYUSD selling to an intraday low at 6.1326 is led by leveraged investors, according to FX trader based in Asia.

the PBOC could be sending a “message” about yuan stability amid broader market volatility.

China Services PMI Jumps Most On Record To 18-Month Highs

While Markit's Manufacturing PMI fell in August, the apparent demand for 'services' in China exploded. China Services PMI jumped from the worst on record 50.0 in July to 54.1 in August (18-month highs). This is the biggest MoM rise in the data on record... because they can. We have nothing to add because it's simply becoming too surreal and manipulated for rational explanation.

HSBC is quick to note that it's not all unicorns and ponies and that more stimulus sis till needed.

“The headline HSBC China Services PMI rebounded to a seventeen-month high of 54.1 in August, after registering an all-time low reading in July. Apart from the rebound in the headline number, other indices suggest a mixed picture rather than a broad-based improvement. The economy still faces downside risks to growth in the second half of the year from the property sector slowdown. We think policy makers should use further easing measures to help support the recovery.”

China HSBC/Markit Manufacturing PMI for August, 50.2 expected 50.3

 China HSBC/Markit Manufacturing PMI for August, 50.2 

expected 50.3, prior was 51.7, flash reading was 50.3 (to a 3-month low)

All you want to know about Jackson Hole Summit

The Jackson Hole Summit is set to take place starting Thursday to Saturday this week, and traders are already buzzing about its potential impact on the financial markets. Allow me to break down what the event is all about, why it matters, and what might happen.

What is the Jackson Hole Summit all about?

While the symposium is held in a ski resort in Jackson Hole, the world’s financial leaders and central bankers won’t just be cruising down the icy slopes for three days. Instead, they are set to discuss current economic issues, potential action steps, and their global outlook… over steaming mugs of hot cocoa around the fireplace inside a log cabin.

This annual forum has been held since 1978 and has been sponsored by the Federal Reserve Bank of Kansas.

Why is this event important?

The fact that this economic event is held only once a year makes it a pretty big deal. Apart from that, this forum is also an opportunity for economic decision-makers to coordinate their plans for monetary and fiscal policies. With that, any announcements made during this summit tend to have a strong impact on longer-term Financial market price action.

Just to give you an idea of how this event rocked the markets in the past, remember that former Fed head Bernanke first dropped hints on QE2 back in 2010′s Jackson Hole Summit before actually implementing this policy change a few months later. Last year, the main topic discussed during the symposium was the Fed’s taper plans.

What could happen this time?

For the upcoming summit, market participants are expecting to hear clearer clues from Fed Chairperson Yellen on when the U.S. central bank might start hiking interest rates. After all, the U.S. economy has been showing consistent progress across most economic sectors yet the FOMC appeared hesitant to disclose any details on potential policy tightening. Many are expecting to hear dovish or cautious remarks from the Fed head, which could lead to dollar weakness and a surge in risk-taking.

Aside from that, the slowdown in employment trends might also be a hot topic. As seen in some major economies like the U.K., headline figures haven’t been so bad yet underlying components such as average earnings have reflected a concerning degree of economic slack.

Geopolitical tensions could also stir up a lot of conversation among economic heads, as the conflicts in Russia, Gaza, and Iraq could pose a huge threat to global growth. In line with this, leaders could also assess the potential repercussions of the sanctions imposed on Russia and by Russia.

As I’ve mentioned earlier, this event could set the tone for longer-term price action so make sure you keep your eyes and ears peeled for any important announcements. Do watch out for potential gaps if you’re keeping trades open over the weekend though!

HSBC/Markit Services PMI for July: 50.0 (prior was 53.1)

China data:

HSBC/Markit Services PMI for July, 50.0

• prior was 53.1
• Services PMI is at the lowest since the survey began in 2005

And the HSBC/Markit Composite PMI for July. 51.6

• prior was 52.4

Key points from Markit/HSBC:

• New order growth accelerates at manufacturers, while new work rises fractionally at service providers
• Input price inflation quickens to eight-month high at the composite level
• First expansion of composite employment since March

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

• “The headline HSBC China Services PMI came in at 50.0 in July, the lowest reading since the series began in November 2005.
• Both the new business and outstanding business indices declined from their levels in June.
• The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities as property related activity, such as agencies and residential services, see less business.
• Meanwhile, the employment and business sentiment indices remain stable.
• In the coming months, we think the service sector may get some support from the recovery in investment.
• But today’s data points to the need of continued policy support to offset the drag from the property correction and consolidate the economic recovery.”
  

Why China Wants Control Of The South China Sea

A stunning $5.3 trillion in goods cross South China Sea every year, 190 trillion cubic feet of gas reserves sit below the ocean floor - enough to replace China's natural gas imports for over a century - so it is hardly surprising that the world's largest importer of oil wants control of such a critical region.

As Bloomberg illustrates in these 10 incredible graphics, everyone has a claim on the same territory andtensions are rising. “The Chinese believe they have the right to be a great power,” said Richard Bitzinger, a senior fellow at the S. Rajaratnam School of International Studies in Singapore. “What we are seeing is a hardening of China’s stance about its place in the world.”

What's at stake...

The Claims...

The Chaos...

As Bloomberg concludes,

The ambitions of China’s leaders don’t stop at the nine-dash line.

“China’s ultimate long-term goal is to obtain parity with U.S. naval capacity in the Pacific,” said Willy Wo-Lap Lam, adjunct professor at the Centre for China Studies at the Chinese University of Hong Kong. “This is a long-term proposition. At this stage the Chinese understand they don’t have the capacity to take on the U.S. head-on.”

“China is testing the limits of America’s alliance relationships in Asia,” said Storey. “By pushing and probing and essentially showing that the U.S. isn’t willing to respond to these provocations, it is undermining those alliances and hence ultimately U.S. credibility and U.S. power over the long term.”

There are two schools of thought on the eventual outcome of China’s ascendancy, according to Rory Medcalf, director of the International Security Program at the Lowy Institute for International Policy in Sydney.

One argues that dominance of the South China Sea is an inevitable outcome of China’s economic and military expansion. The other says that China will have to curb its ambitions or risk provoking a conflict, even war, which could draw in the U.S.

It’s not possible to judge which scenario ends up proving right, said Medcalf. “The story is only beginning.”

zerohedge.com

European Stocks Plunge Into Red For 2014, Portugal Down 10% This Week As Espirito Santo Stock Suspended After 40% Crash.

But but but... the crisis is over and Europe is recovering? European stocks dropped 3.2% in the last 2 days - the most in 7 months - taking the broad index into the red for 2014. Portugal (remember how BES was contained) collapsed 10.3% this week (down 26% from its highs in April) to one-year lows.Europe's VIX spiked over 20 today - its highest in over 4 months.

 European stocks are red for 2014

Portugal led the decline...

• BANCO ESPIRITO SANTO SHARES SUSPENDED PENDING INFORMATION, CMVM SAYS

With Goldman bailing and the sovereign suggesting it is not willing to bailout, it appears - based on Sub debt's collapse - that a bail-in burden-sharing solution is coming. 

The Illustrated Guide To 20 Years Of Latin American Debt Crises

As the Argentina farce rolls on, it is worth noting that this is nothing new. As Bloomberg Briefs shows below,Latin American nations have been serial defaulters for the last 20 years.

Source: Bloomberg Briefs

China April trade balance: $ 18.46bn (vs. expected $16.70bn)

Exports:  +0.9% 
expected -3.0%, 
prior was -6.6% 

Imports: +0.8 % 
expected -2.1%, 
prior was -11.3% 

Here is the data from China ... Finally.

China Credit Trust Terminates $23-mln Product for Nonggeshan Pb & Zn Project

China Credit Trust Co. in March terminated its product for Nonggeshan Pb&Zn project, valued at 140 million yuan ($23 million), ahead of the due date at the end of May, DZHnews.com reported today.

The termination, which would be considered as China’s first trust product default, was due to inflated evaluation, production halts at the mines and risky usurious loans involved, the report said. China Credit Trust issued the product in August 2011 to acquire a 99% stake in Sichuan Nonggeshan Polymetallic Mining Co. and to develop the Nonggeshan Pb & Zn project, it said. 

In an annual report on the nation's financial stability in late April, the People's Bank of China said some high-risk investment products should be allowed to fail ``natually'' and investors cannot assume a cast-iron guarantee.

Another Example :-

World Bank: China to overtake US as biggest economy THIS YEAR

A new study by the World Bank predicts that the US will lose its status as the world's largest economy later this year.

Previous studies forecast the US will only lose the top spot – which it took from the United Kingdom in 1872 – at the end of this decade at the soonest.

The report by the International Comparison Program at the World Bank estimates total economic output between countries by using purchasing power parity or PPP which takes into account the relative costs of goods and services and inflation rates, rather than simply using volatile exchange rates which give you nominal GDP figures.

The World Bank's updated methodology for PPP indicates that the gap of $3.4 trillion in 2012 (on a nominal basis that gap was closer to $8 trillion) has now shrunk dramatically.

In 2005, the ICP estimated China’s economy was less than half the size of the US, accounting for only 43.1% of the US total. That proportion grew to 86.9% in 2011.

That gap should disappear this year thanks to the rapid growth in China where the economy is thought to have grown roughly 24% since 2011 while the US economy's expected expansion through 2014 is pegged at less than 8%.

The new methodology also paints a very different picture of India, which leaps from 10th place in 2005 at 19% of the US size to 37% and 3rd in 2011, relegating Japan to fourth place.

Of course absolute size only tells part of the story. On a per capita basis, the gap between the developed economies and newly minted GDP giants remain wide: