As we cast our gaze back on the year, it is clear that, even as the world’s monetary and fiscal authorities applied gigantic solutions directly to the banking industry, their efforts went largely unnoticed by the real economy.
The theme for the period from 2000 to 2008 was “globalization.” It turns out that this may have been a fad.
Frozen Ports in Long Beach, Singapore Mean Bleak 2010
Dec. 23 (Bloomberg) -- Chris Lytle, chief operating officer of the port of Long Beach, California, took in a panorama of the slumping world economy from his rooftop observation deck one day this month.
Shipping cranes stood still, truck traffic trickled and a cargo vessel sat idle, moored to a pier.
“You never see that,” Lytle said. “It’s quiet. Too quiet.”
Port traffic has slowed from North America to Europe and Asia as a recession erodes consumer demand and the credit crisis chokes off loans to export-dependent companies. International trade is set to fall by more than 2 percent next year, the most since the World Bank began measuring it in 1971. Idle ports around the globe are showing how quickly a collapse in trade can spread, undermining growth in each country it reaches.
“Everybody expects 2009 to be a bleak year,” said Jim McKenna, chief executive officer of the Pacific Maritime Association, a San Francisco-based group representing dock employers at U.S. West Coast ports. “Now, it looks like 2010 is going to be just as bleak.”
Coal is piling up at the Mozambique port of Maputo. Brazil’s exports of cars, household appliances, machinery and furniture fell in November from a year earlier. The port in Singapore, the world’s busiest for containers, posted its first month-over-month decline in seven years in November, at 1.5 percent.
“The problem is that people can’t get financing, no matter what their credit situation,” said Ed Rice, president of the Coalition for Employment through Exports, which represents companies such as Boeing Co., Caterpillar Inc., United Parcel Service Inc. and BNP Paribas SA. “Banks are canceling credit lines even for creditworthy customers.”
There is really no possible way to plan for such a rapid deceleration of business. When the dust settles and all that Fed money finally finds some traction in the real economy, we will almost certainly discover that ships have been scuttled, ports closed, and dockworkers laid off. Fed money is fast; rebuilding capacity is slow.
I am not certain when all that Fed money will hit the real economy – 12 to 18 months is my best guess – but when it does, it is likely to find itself short of things to do. When money exceeds goods and services, inflation is the result.
And over in another sector of the real world, the housing bubble continues to pop, doing exactly what many, myself included, predicted it would: Return to the prices from which it began its bubbly ascent.
U.S. Economy: Home Prices Fall Near Depression Pace
Dec. 23 (Bloomberg) -- Sales of single-family houses in the U.S. dropped in November by the most in two decades and resale prices collapsed at a pace reminiscent of the Great Depression, dashing speculation the market was close to a bottom.
Purchases of both new and existing houses dropped 7.6 percent from the prior month, the biggest decline since January 1989, to an annual rate of 4.43 million, government and industry figures showed today. A 13 percent drop in the median resale price from a year earlier was the most since records began in 1968 and was likely the largest since the 1930s, the National Association of Realtors said.
“Housing is still in a freefall,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.
The number of previously owned unsold homes on the market at the end of November represented 11.2 months’ worth at the current sales pace, up from 10.3 months’ at the end of the prior month.
Foreclosures and short sales accounted for 45 percent of last month’s home purchases, Yun said.
Purchases of total existing homes declined in all regions of the country, led by drops of 12 percent in the Northeast and 10.9 percent in the South. Prices also fell throughout the country, led by a decline of 25.5 percent in the West.
And if you read the above carefully, you will note that, as bad as the resale numbers were, they were inflated by nearly 45% if one chooses to exclude foreclosures and short sales from the pool of legitimate “sales."
What this means is that the Fed and the Treasury have only managed to stabilize the banking system, and only for now. They have not managed to change the trajectory of the real economy, where real houses and real goods are traded and sold.
Unfortunately, they are focused on getting us to return to a level of new credit/debt creation that can sustain a return to something resembling the former economy, but this is a pipe dream. That was a credit bubble 25 years in the making, and they would do well to ask if that is either a possible or worthy goal.
I have my doubts.
This is a companion discussion topic for the original entry at https://peakprosperity.com/real-economy-shudders-to-a-halt-2/
