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Are You Kidding Me? Chinese Exports Plunge 25.4 Percent Compared To Last Year

Exports Declining - Public DomainWe just got more evidence that global trade is absolutely imploding.  Chinese exports dropped 25.4 percent during the month of February compared to a year ago, and Chinese imports fell 13.8 percent compared to a year ago.  For Chinese exports, that was the worst decline that we have seen since 2009, and Chinese imports have now fallen for 16 months in a row on a year over year basis.  The last time we saw numbers like this, we were in the depths of the worst economic downturn since the Great Depression of the 1930s.  China accounts for more global trade than any other nation (including the United States), and so this is a major red flag.  Anyone that is saying that the global economy is in “good shape” is clearly not paying attention.

If someone would have told me a year ago that Chinese exports would be 25 percent lower next February, I would not have believed it.  This is not just a slowdown – this is a historic implosion.  The following comes from Zero Hedge

Things are not getting better in China as Exports crashed 25.4% YoY (the 3rd largest drop in history), almost double the 14.5% expectation and Imports tumbled 13.8%, the 16th month of YoY decline – the longest ever. Altogether this sent the trade surplus down to $32.6bn (missing expectations of $51bn) to 11-month lows.

Chinese Exports - Zero Hedge

So much for that whole “devalue yourself to export growth” idea…

I don’t know how anyone can possibly dismiss the importance of these numbers.  As you can see, this is not just a one month aberration.  Chinese trade numbers have been declining for months, and that decline appears to be accelerating.

Another very interesting piece of news that has come out in recent days regards the massive layoffs that are coming at state industries in China.  According to Reuters, five to six million Chinese workers are going to be losing their jobs during this transition…

China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution, two reliable sources said, Beijing’s boldest retrenchment program in almost two decades.

China’s leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years.

 

For years, the Chinese economic miracle has been fueling global economic growth, but now things are changing dramatically.

Another factor that we should discuss is the fact that the relationship between the United States and China is going downhill very rapidly.  This is something that I wrote about yesterday.  China has seized control of several very important islands in the South China Sea, and in response the Obama administration has been sailing military vessels past the islands in a threatening manner.  Most recently, Obama decided to have an aircraft carrier task force cruise past the islands, and this provoked a very angry response from the Chinese

The four-ship U.S. strike group that patrolled the disputed South China Sea was followed by Chinese warships, a show of force that prompted a hard-line response from China doubling down on its claim to nearly all of the resource-rich sea.  

China’s foreign minister said his country’s sovereignty claims are supported by history and made a veiled reference to the 5-day patrol by the Stennis Carrier Strike Group, as well as recent passes by China’s man-made islands by destroyers Lassen and Curtis Wilbur in recent months.

“The South China Sea has been subject to colonial invasion and illegal occupation and now some people are trying to stir up waves, while some others are showing off forces,” Wang Yi said, according to an Associated Press report, a day after the Stennis CSG departed the South China Sea.  “However, like the tide that comes and goes, none of these attempts will have any impact. History will prove who is merely the guest and who is the real host.”

Most Americans are not even paying attention to this dispute, but in China there is talk of war.  The Chinese are absolutely not going to back down, and it does not look like Obama is going to either.  Needless to say, a souring of the relationship between the largest economy on the planet and the second largest economy on the planet would not be a good thing for the global economy.

And of course China is far from the only country that is having economic problems.  Yesterday, I discussed how Italy’s banking system is on the verge of completely collapse.  A few days before that I discussed the economic depression that has gripped much of South America.  A new global economic crisis has already begun, and just because the United States is feeling less pain than the rest of the world so far does not mean that everything is going to be okay.

There are huge red flags in Europe, Asia and South America right now.  In addition, our neighbor to the north (Canada) is experiencing a very significant slowdown.  The irrational optimists can continue to believe that the U.S. economy will somehow escape relatively unscathed if they would like, but that is not going to be what happens.

Just like virtually everyone else on the planet, we are heading into hard times too, and this is going to become a dominant theme in the presidential campaign as we move forward into the months ahead.

21 New Numbers That Show That The Global Economy Is Absolutely Imploding

Earth At Night - Public DomainAfter a series of stunning declines through the month of January and the first half of February, global financial markets seem to have found a patch of relative stability at least for the moment.  But that does not mean that the crisis is over.  On the contrary, all of the hard economic numbers that are coming in from around the world tell us that the global economy is coming apart at the seams.  This is especially true when you look at global trade numbers.  The amount of stuff that is being bought, sold and shipped around the planet is falling precipitously.  So don’t be fooled if stocks go up one day or down the next.  The truth is that we are in the early chapters of a brand new economic meltdown, and I believe that all of the signs indicate that it will continue to get worse in the months ahead.  The following are 21 new numbers that show that the global economy is absolutely imploding…

#1 Chinese exports fell by 11.2 percent year over year in January.

#2 Chinese imports were even worse in January.  On a year over year basis, they declined a whopping 18.8 percent.

#3 It may be hard to believe, but Chinese imports have now plunged for 15 months in a row.

#4 In India, exports were down 13.6 percent on a year over year basis in January.

#5 In Japan, exports declined 8 percent in December on a year over year basis, while imports plummeted 18 percent.

#6 For the sixth time in six years, Japanese GDP growth has gone negative.

#7 In the United States, exports were down 7 percent on a year over year basis in December.

#8 U.S. factory orders have fallen for 14 months in a row.

#9 The Restaurant Performance Index in the United States has dropped to the lowest level that we have seen since 2008.

#10 This month the Baltic Dry Index fell below 300 for the first time ever.

#11 It is now cheaper to rent a 1,100 foot merchant vessel than it is to rent a Ferrari.

#12 Orders for Class 8 trucks in the United States dropped by 48 percent on a year over year basis in January.

#13 Due to a lack of demand for trucks, Daimler just laid off 1,250 U.S. workers.

#14 Even though Saudi Arabia and Russia have agreed to freeze oil production at current levels, the price of U.S. oil has still fallen below 30 dollars a barrel.

#15 It is being reported that 35 percent of all oil and gas companies around the world are at risk of falling into bankruptcy.

#16 According to CNN, 67 oil and gas companies in the United States filed for bankruptcy during 2015.

#17 The number of job cuts in the United States skyrocketed 218 percent during the month of January according to Challenger, Gray & Christmas.

#18 All over America, retail stores are shutting down at a stunning pace.  The following list of store closures comes from one of my previous articles

-Wal-Mart is closing 269 stores, including 154 inside the United States.

-K-Mart is closing down more than two dozen stores over the next several months.

-J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.

-Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.

-The Gap is in the process of closing 175 stores in North America.

-Aeropostale is in the process of closing 84 stores all across America.

-Finish Line has announced that 150 stores will be shutting down over the next few years.

-Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.

#19 The price of gold is enjoying its best quarterly performance in 30 years.

#20 Global stocks have fallen into bear market territory, which means that about one-fifth of all global stock market wealth has already been wiped out.

#21 Unfortunately for global central banks, they have pretty much run out of ammunition.  Since March 2008, central banks have cut interest rates 637 times and they have purchased a staggering 12.3 trillion dollars worth of assets.  There is not much more that they can do, and now the next great crisis is upon us.

Without any outside influences, the global economy and the global financial system will continue to rapidly fall apart.

But if we do have a major “black swan event” take place, that could cause the bottom to fall out at any moment.

In particular, I am deeply concerned about the possibility that World War III could be sparked in the Middle East.  In an article that I published earlier today entitled “Turkey Is Asking The United States To Take Part In A Ground Invasion Of Syria“, I included a quote from Turkish Foreign Minister Mevlut Cavusoglu that reveals just how eager Turkey and Saudi Arabia are for war to begin…

Some countries like us, Saudi Arabia and some other Western European countries have said that a ground operation is necessary,” Turkish Foreign Minister Mevlut Cavusoglu told Reuters in an interview.

However, this kind of action could not be left to regional powers alone. “To expect this only from Saudi Arabia, Turkey and Qatar is neither right nor realistic. If such an operation is to take place, it has to be carried out jointly, like the (coalition) air strikes,” he said.

The Turks and the Saudis very much want the United States to take a leading role in any ground invasion of Syria, but the Obama administration is not likely to do that.

So we shall see if the Turks and the Saudis are willing to go ahead without us.  Let us hope that they do not decide to invade Syria, because that could start the biggest war in the Middle East that any of us have ever seen.

Unfortunately, Turkey is already attacking.

Turkey has been shelling Kurdish and Syrian military positions in northern Syria for four days in a row even though the Obama administration has been urging them to stop.

The first month and a half of 2016 has already been quite chaotic, and the stage is set for global events to greatly accelerate during the months ahead.

Sadly, the mainstream media in the United States is largely ignoring the preparations for a ground invasion of Syria, and they keep telling us that the global economy is going to be just fine, so most ordinary Americans are going to be absolutely blindsided by what is about to happen.

22 Signs That The Global Economic Turmoil We Have Seen So Far In 2016 Is Just The Beginning

Skyline Globe Clock Gears - Public DomainAs bad as the month of January was for the global economy, the truth is that the rest of 2016 promises to be much worse.  Layoffs are increasing at a pace that we haven’t seen since the last recession, major retailers are shutting down hundreds of locations, corporate profit margins are plunging, global trade is slowing down dramatically, and several major European banks are in the process of completely imploding.  I am about to share some numbers with you that are truly eye-popping.  Each one by itself would be reason for concern, but when you put all of the pieces together it creates a picture that is hard to deny.  The global economy is in crisis, and this is going to have very serious implications for the financial markets moving forward.  U.S. stocks just had their worst January in seven years, and if I am right much worse is still yet to come this year.  The following are 22 signs that the global economic turmoil that we have seen so far in 2016 is just the beginning…

1. The number of job cuts in the United States skyrocketed 218 percent during the month of January according to Challenger, Gray & Christmas.

2. The Baltic Dry Index just hit yet another brand new all-time record low.  As I write this article, it is sitting at 303.

3. U.S. factory orders have now dropped for 14 months in a row.

4. In the U.S., the Restaurant Performance Index just fell to the lowest level that we have seen since 2008.

5. In January, orders for class 8 trucks (the big trucks that you see shipping stuff around the country on our highways) declined a whopping 48 percent from a year ago.

6. Rail traffic is also slowing down substantially.  In Colorado, there are hundreds of train engines that are just sitting on the tracks with nothing to do.

7. Corporate profit margins peaked during the third quarter of 2014 and have been declining steadily since then.  This usually happens when we are heading into a recession.

8. A series of extremely disappointing corporate quarterly reports is sending stock after stock plummeting.  Here is a summary from Zero Hedge of a few examples that we have just witnessed…

  • SHARES OF LIONS GATE ENTERTAINMENT FALL 5 PCT IN EXTENDED TRADE AFTER QUARTERLY RESULTS – RTRS
  • TABLEAU SOFTWARE SHARES TUMBLE 40 PCT IN AFTER HOURS TRADING – RTRS
  • YRC WORLDWIDE SHARES DOWN 16.4 PCT AFTER THE BALL FOLLOWING RESULTS – RTRS
  • SPLUNK INC SHARES DOWN 7.6 PCT IN AFTER HOURS TRADING – RTRS
  • LINKEDIN SHARES EXTEND DECLINE, DOWN 24 PCT AFTER RESULTS, GUIDANCE – RTRS
  • HANESBRANDS SHARES FURTHER ADD TO LOSSES IN EXTENDED TRADE, LAST DOWN 14.9 PCT – RTRS
  • OUTERWALL SHARES FALL 11 PCT IN EXTENDED TRADING AFTER QUARTERLY RESULTS – RTRS
  • GENWORTH SHARES DOWN 16.5 PCT AFTER THE BELL FOLLOWING RESULTS, RESTRUCTURING PLAN

9. Junk bonds continue to crash on Wall Street.  On Monday, JNK was down to 32.60 and HYG was down to 77.99.

10. On Thursday, a major British news source publicly named five large European banks that are considered to be in very serious danger…

Deutsche Bank, Credit Suisse, Santander, Barclays and RBS are among the stocks that are falling sharply sending shockwaves through the financial world, according to former hedge fund manager and ex Goldman Sachs employee Raoul Pal.

11. Deutsche Bank is the biggest bank in Germany and it has more exposure to derivatives than any other bank in the world.  Unfortunately, Deutsche Bank credit default swaps are now telling us that there is deep turmoil at the bank and that a complete implosion may be imminent.

12. Last week, we learned that Deutsche Bank had lost a staggering 6.8 billion euros in 2015.  If you will recall, I warned about massive problems at Deutsche Bank all the way back in September.  The most important bank in Germany is exceedingly troubled, and it could end up being for the EU what Lehman Brothers was for the United States.

13. Credit Suisse just announced that it will be eliminating 4,000 jobs.

14. Royal Dutch Shell has announced that it is going to be eliminating 10,000 jobs.

15. Caterpillar has announced that it will be closing 5 plants and getting rid of 670 workers.

16. Yahoo has announced that it is going to be getting rid of 15 percent of its total workforce.

17. Johnson & Johnson has announced that it is slashing its workforce by 3,000 jobs.

18. Sprint just laid off 8 percent of its workforce and GoPro is letting go 7 percent of its workers.

19. All over America, retail stores are shutting down at a staggering pace.  The following list comes from one of my previous articles

-Wal-Mart is closing 269 stores, including 154 inside the United States.

-K-Mart is closing down more than two dozen stores over the next several months.

-J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.

-Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.

-The Gap is in the process of closing 175 stores in North America.

-Aeropostale is in the process of closing 84 stores all across America.

-Finish Line has announced that 150 stores will be shutting down over the next few years.

-Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.

20. According to the New York Times, the Chinese economy is facing a mountain of bad loans that “could exceed $5 trillion“.

21. Japan has implemented a negative interest rate program in a desperate attempt to try to get banks to make more loans.

22. The global economy desperately needs the price of oil to go back up, but Morgan Stanley says that we will not see $80 oil again until 2018.

It is not difficult to see where the numbers are trending.

Last week, I told my wife that I thought that Marco Rubio was going to do better than expected in Iowa.

How did I come to that conclusion?

It was simply based on how his poll numbers were trending.

And when you look at where global economic numbers are trending, they tell us that 2016 is going to be a year that is going to get progressively worse as it goes along.

So many of the exact same things that we saw happen in 2008 are happening again right now, and you would have to be blind not to see it.

Hopefully I am wrong about what is coming in our immediate future, because millions upon millions of Americans are not prepared for what is ahead, and most of them are going to get absolutely blindsided by the coming crisis.

Economic Activity Is Slowing Down Much Faster Than The Experts Anticipated

Locomotive - Public DomainWe have not seen global economic activity fall off this rapidly since the great recession of 2008.  Manufacturing activity is imploding all over the planet, global trade is slowing down at a pace that is extremely alarming, and the Baltic Dry Index just hit another brand new all-time record low.  If the “real economy” consists of people making, selling and shipping stuff, then it is in incredibly bad shape.  Here in the United States, the dismal economic numbers continue to stun all of the experts.  For example, on Monday we learned that the Texas general business activity index just hit a six year low

Economic activity in Texas keeps getting worse.

The general business activity index out Monday from the Dallas Federal Reserve for January was -34.6, a six-year low and much worse than economists had expected.

The forecast for the monthly index was -14, following a December reading of -21.6 (revised from -20.1) that was also worse than expected.

One could perhaps argue that this is to be expected in Texas because of the collapse in the price of oil.

But what about the very unusual things that we are seeing in other areas of the country?  In Erwin, Tennessee, a rail terminal that had been continuously operating for 135 years was just permanently shut down, and hundreds of workers now find themselves without a job

The last coal train to leave Erwin rolled slowly out of town just after at 3 p.m. Thursday, less than eight hours after CSX Transportation employees heard the news that rocked all of Unicoi County.

“Its a hard pill to swallow,”  county Mayor Greg Lynch said. “Of course, we heard rumors that something was coming down. But never in my wildest dreams did I imagine they would just shut down and leave town.”

CSX delivered the news of its decision to immediately close Erwin’s 175-acre rail yard and abruptly end the employment of the facility’s 300 workers in a series of meetings with employees conducted at the start of their morning shifts.

It has been said that if you want to know what is really happening with the U.S. economy, just watch the railroads.

And right now, rail traffic all over the nation is falling to depressingly low levels.

One of Steve Quayle’s readers says that rail traffic in Colorado has slowed down so much that hundreds of engines are just sitting there on the tracks

With regard to the train freight article this morning, we have in Grand Junction, CO., literally hundreds of engines sidelined on the tracks. They are three deep on some tracks and easily number over 250. I have never seen this many engines on the tracks before and I feel this is just another indicator of the slowdown in shipping.

In case you are tempted to think that this is just anecdotal evidence, I want you to consider what is happening to the largest railroad company in the United States.

According to Wolf Richter, operating revenues for Union Pacific were down 15 percent last year…

Union Pacific, the largest US railroad, reported awful fourth-quarter earnings Thursday evening. Operating revenues plummeted 15% year over year, and net income dropped 22%.

It was broad-based: The only category where revenues rose was automotive (+1%). Otherwise, revenues fell: Chemicals (-7%), Agricultural Products (-12%), Intermodal containers (-14%), Industrial Products (-23%), and Coal (-31%). Shipment of crude plunged 42%.

So Union Pacific did what American companies do best: it laid off 3,900 people last year.

And of course we can see evidence of the emerging economic slowdown all around us pretty much wherever we look.  Sprint just laid off 8 percent of its workforce, GoPro is letting go 7 percent of its workers,  and Wal-Mart just announced the closure of 269 stores.

But instead of dealing with reality, there are a lot of irrational optimists that insist that things will start bouncing back any day now.  For instance, CNBC is reporting that Goldman Sachs is forecasting that the S&P 500 will end up finishing the year back at 2,100…

Goldman, though, is sticking with its forecast that the S&P 500 will rebound and finish the year at 2,100, a rise of about 11 percent from current levels but basically no net gain for the full year.

It is easy to say something like that, but the actions of the big banks speak louder than words.

Most people don’t realize this, but several of the “too big to fail” banks laid off thousands of workers in 2015

Bank of America and Citigroup reduced headcount the most, eliminating about 20,000 staffers between them, according to fourth-quarter earnings reports from each bank. The respective moves amount to 4.6 percent and 4 percent fewer workers at the banks. JPMorgan Chase reported in its earnings that it employs 6,700 fewer workers than a year ago.

And guess what?

The “too big to fail” banks did the exact same thing just before the great stock market crash of 2008.

When are people going to finally start understanding that we have a major league crisis on our hands?

Since June 2015, approximately 15 trillion dollars of global stock market wealth has been wiped out.  After a brief respite at the end of last week, it appears that the global financial crisis is getting ready to accelerate once again.

On Monday, the price of oil dipped back under 30 dollars, the Dow was down another 208 points, and the Nikkei is currently down another 389 points in early trading.

Somewhere close to one-fifth of all global stock market wealth has already been wiped out.

We only have about four-fifths left.

But in the end, I can talk about these numbers until I am blue in the face and some people will still not get prepared.

Some people have so much faith in Barack Obama, the Federal Reserve and the mainstream media that they would literally follow them off a cliff.

By now, most of the people that believe that they should prepare for the coming crisis have already gotten prepared, and most of those that want to believe that everything is going to work out just fine somehow are never going to get prepared anyway.

What is going to happen is going to happen, and tens of millions of people are going to end up bitterly regretting not listening to the warnings when they still had the chance.

Lowest Ever: The Baltic Dry Index Plunges To 394 As Global Trade Grinds To A Standstill

Container Ship - Public DomainFor the first time ever, the Baltic Dry Index has fallen under 400.  As I write this article, it is sitting at 394.  To be honest, I never even imagined that it could go this low.  Back in early August, the Baltic Dry Index was sitting at 1,222, and since then it has been on a steady decline.  Of course the Baltic Dry Index crashed hard just before the great stock market crash of 2008 too, but at this point it is already lower than it was during that entire crisis.  This is just more evidence that global trade is grinding to a halt and that 2016 is going to be a “cataclysmic year” for the global economy.

If you are not familiar with the Baltic Dry Index, here is a helpful definition from Wikipedia

The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides “an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.”

The BDI is one of the key indicators that experts look at when they are trying to determine where the global economy is heading.  And right now, it is telling us that we are heading into a major worldwide economic downturn.

Some people try to dismiss the recent drop in the Baltic Dry Index by claiming that shipping rates are down because there is simply too much capacity out there these days.  And I don’t dispute that.  Without a doubt, too many vessels were built during the “boom years”, and now shipbuilders are paying the price.  For example, Chinese shipyards reported a 59 percent decline in orders during the first 11 months of 2015…

Total orders at Chinese shipyards tumbled 59 percent in the first 11 months of 2015, according to data released Dec. 15 by the China Association of the National Shipbuilding Industry. Builders have sought government support as excess vessel capacity drives down shipping rates and prompts customers to cancel contracts. Zhoushan Wuzhou Ship Repairing & Building Co. last month became the first state-owned shipbuilder to go bankrupt in a decade.

But that doesn’t explain everything.  The truth is that exports are way down all over the world.  China, the United States, South Korea and many other major exporting nations have all been reporting extremely dismal export numbers.  Global trade is contracting quite rapidly, and I don’t see how anyone could possibly dispute that.

The global economy is a mess, but many people are not paying any attention to the economic fundamentals because they are too busy looking at the stock market.

The stock market does not tell us how the economy is doing.  If the stock market is up today that does not mean that the economy is doing well, and if the stock market is down tomorrow that does not mean that it is doing poorly.

Yes, the health of the financial markets can greatly affect the overall economy.  We saw this back in 2008.  When there is a tremendous amount of panic, that can cause a credit crunch and make it very difficult for money to flow through our system.  The end result is a rapid slowdown of economic activity, and it is something that we will be experiencing again very soon.

But don’t let the day to day fluctuations of the stock market fool you.  Just because the Dow was up 227 points today does not mean that the crisis is over.  It is important to remember that stocks are not going to go down every single day.  On Thursday, the Dow didn’t even regain two-thirds of what it lost on Wednesday.  Even in bear markets there are up days, and some of the biggest up days in stock market history were right in the middle of the crash of 2008.

It is critical that we take a long-term view of things and not let our vision be clouded by every tick up and down in the financial markets.  Initial jobless claims just hit their highest level in about six months, and companies like Macy’s and GoPro are laying off thousands of workers.  Things are already bad, and they are rapidly getting worse.

And let us not forget the great amount of financial carnage that has already happened so far this year.  According to CNBC, approximately 3.2 trillion dollars of stock market wealth was wiped out globally during the first 13 days of 2016…

Almost $3.2 trillion has been wiped off the value of stocks around the world since the start of 2016, according to calculations by a top market analyst.

It has also been the worst-ever start to a year for U.S. equities, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, as both the S&P 500 and the blue-chip Dow Jones industrial average have posted their steepest losses for the first eight days trading of a year.

Over the past six months, there have now been two 10 percent “corrections” for U.S. stocks.  The only other times we have seen multiple corrections like this were in 1929, 2000 and 2008.  If those years seem familiar to you, that is because they should.  In all three years, we witnessed historic stock market crashes.

The stunning collapse of the Baltic Dry Index is just more evidence that we have entered a global deflationary crisis.  Goods aren’t moving, unemployment is rising all over the planet, and commodity prices have fallen to levels that we have not seen in over a decade.

Around the globe, there have been dramatic stock market crashes to begin the year, and we should expect to see much more market turmoil during the weeks and months to come.

If the markets have calmed down a bit for the moment, we should be very thankful for that, because we could all use some additional time to prepare for what is coming.

The debt-fueled standard of living that so many of us are enjoying today is just an illusion.  And many of us won’t even understand what we have been taking for granted until it is taken away from us.

A great shaking is coming to the global economy, and the pain is going to be unimaginable.  So let us enjoy every single day of relative “normalcy” while we still can, because there aren’t too many of them left.

The U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse

Dollar Hands - Public DomainThe 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America.  But it isn’t just South America that is experiencing a very serious economic downturn.  We have just learned that Japan (the third largest economy in the world) has lapsed into recession.  So has Canada.  So has Russia.  The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year.  At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low.  Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.

Throughout 2015, the U.S. dollar has been getting stronger.  That sounds like good news, but the truth is that it is not.  When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before.  But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem.  As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining.  Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated.  Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.

Many Americans may be wondering when “the next economic crisis” will arrive, but nobody in Brazil is asking that question.  Thanks to the rising U.S. dollar, Brazil has already plunged into a very deep recession

As Brazilian president Dilma Rousseff combats a slumping economy and corruption accusations, the country’s inflation surged above 10 percent while unemployment jumped to 7.9 percent, according to the latest official data. The dour state of affairs has Barclays forecasting a 4 percent economic contraction this year, followed by 3.3 percent shrinkage next year, the investment bank said in a research note last week.

The political and economic turmoil has recently driven the real, Brazil’s currency, to multiyear lows, a factor helping to stoke price pressures.

And as I mentioned above, Brazil is far from alone.  This is something that is happening all over the planet, and the process appears to be accelerating.  One of the places where this often first shows up is in the trade numbers.  The following comes from an article that was just posted by Zero Hedge

This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines – having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”

Many “experts” seem mystified by all of this, but the explanation is very simple.

For years, global economic growth was fueled by cheap U.S. dollars.  But since the end of QE, the U.S. dollar has been surging, and according to Bloomberg it just hit a 12 year high…

The dollar traded near a seven-month high against the euro before the release of minutes of the Federal Reserve’s October meeting, when policy makers signaled the potential for an interest-rate increase this year.

A trade-weighted gauge of the greenback is at the highest in 12 years as Fed Chair Janet Yellen and other policy makers have made numerous pronouncements in the past month that it may be appropriate to boost rates from near zero at its Dec. 15-16 gathering. The probability the central bank will act next month has risen to 66 percent from 50 percent odds at the end of October.

But even though the wonks at the Federal Reserve supposedly know the damage that a strong dollar is already doing to the global economy, they seem poised to make things even worse by raising interest rates in December

Most Federal Reserve policymakers agreed last month that the economy “could well” be strong enough in December to withstand the Fed’s first Interest rate hike in nearly a decade, according to minutes of its meeting Oct. 27-28.

The officials said global troubles had eased and a delay could increase market uncertainty and undermine confidence in the economy.

The meeting summary provides the clearest evidence yet that a majority of Fed policymakers are leaning toward raising the central bank’s benchmark rate next month, assuming the economy continues to progress.

Considering the tremendous amount of damage that has already been done to the global economy, this is one of the stupidest things that they could possibly do.

But it looks like they are going to do it anyway.

It has been said that those that refuse to learn from history are doomed to repeat it.

And right now so many of the exact same patterns that we saw just before the great financial crisis of 2008 are playing out once again right in front of our eyes.

A lot of people out there seem to assume that once we got past the September/October time frame that we were officially out of “the danger zone”.

But that is not true at all.

The truth is that we have already entered a new global economic downturn that is rapidly accelerating, and the financial shaking that we witnessed in August was just a foreshock of what is coming next.

Let us hope that common sense prevails and the Fed chooses not to raise interest rates at their next meeting.

Because if they do, it will just make the global crisis that is now emerging much, much worse.

The Baltic Dry Shipping Index Just Collapsed To An All-Time Record Low

Globe Matrix - Public DomainI was absolutely stunned to learn that the Baltic Dry Shipping Index had plummeted to a new all-time record low of 504 at one point on Thursday.  I have written a number of articles lately about the dramatic slowdown in global trade, but I didn’t realize that things had gotten quite this bad already.  Not even during the darkest moments of the last financial crisis did the Baltic Dry Shipping Index drop this low.  Something doesn’t seem to be adding up, because the mainstream media keeps telling us that the global economy is doing just fine.  In fact, the Federal Reserve is so confident in our “economic recovery” that they are getting ready to raise interest rates.  Of course the truth is that there is no “economic recovery” on the horizon.  In fact, as I wrote about yesterday, there are signs all around us that are indicating that we are heading directly into another major economic crisis.  This staggering decline of the Baltic Dry Shipping Index is just another confirmation of what is directly ahead of us.

Overall, the Baltic Dry Index is down more than 60 percent over the past 12 months.  Global demand for shipping is absolutely collapsing, and yet very few “experts” seem alarmed by this.  If you are not familiar with the Baltic Dry Shipping Index, the following is a pretty good definition from Investopedia

A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed).

The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) – Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index’s composite measurement.

It is also known as the “Dry Bulk Index”.

Much of the decline of the Baltic Dry Shipping Index is being blamed on China.  The following comes from a Bloomberg report that was posted on Thursday…

The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes.

The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to 504 points on Thursday, the lowest data from the London-based Baltic Exchange going back to 1985. Among the causes of shipowners’ pain is slowing economic growth in China, which is translating into weakening demand for imported iron ore that’s used to make the steel.

So many of the exact same patterns that we witnessed back in 2008 are playing out once again in front of our very eyes.  Below, I have shared a chart that was posted by Zero Hedge, and it shows how the Baltic Dry Shipping Index absolutely collapsed in 2008 as we headed into a major financial crisis.  Well, now the Index is collapsing again, and it is already lower than it was at any point back in 2008…

Baltic Dry Index - Zero Hedge

The evidence continues to mount that we are steamrolling toward a deflationary economic slowdown that is worldwide in scope.

Just look at the price of U.S. oil.  It just keeps on falling, and as I write this article it is sitting at $40.40.

The price of oil collapsed just before the financial crisis of 2008, and the same pattern is happening again.

And look at what is happening to commodities. The Thomson Reuters/CoreCommodity CRB Commodity Index has plummeted to the lowest level that we have seen since the last recession. It is now down more than 30 percent over the past 12 months, and it continues to fall.

So don’t be fooled by the temporary “stock market recovery” that we have witnessed.  The underlying economic fundamentals continue to decline.  We are entering a global deflationary recession, and the stock market will get the memo at some point just like we saw in 2008.

At this moment, global financial markets are teetering on the brink, and all it is going to take is some kind of major trigger event to send them tumbling over the edge.

And such an event may be coming sooner than you may think.

We live at a time when global terrorism is surging, relationships between nations are deteriorating and our planet is shaking in wild and unpredictable ways.

It wouldn’t take much to push the financial world into full-blown panic mode.  A major regional war in the Middle East, a terror attack that kills thousands, or an earthquake or volcanic eruption that affects a large U.S. city are all potential examples of “black swan events” which could fit the bill.

The global financial system has never been more primed for another 2008-style crisis.  Thanks to the fragility of the system, it could literally happen any day now.

So keep your eyes open – within weeks our world could be completely and totally different.

We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

Globe Interconnected - Public DomainIf you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived.  Never before in history has global trade collapsed this dramatically outside of a major worldwide recession.  And this makes perfect sense – when global economic activity is increasing there is more demand for goods and services around the world, and when global economic activity is decreasing there is less demand for goods and services around the world.  So far this year, global trade is down about 8.4 percent, and over the past 30 days the Baltic Dry Index has been absolutely plummeting.  A month ago it was sitting at a reading of 809, but now it has fallen all the way to 628.  However, it is when you look at the trade numbers for specific countries that the numbers become particularly startling.

Just within the last few days, new trade numbers have come out of China.  China accounts for approximately one-fifth of all global factory exports, and for many years Chinese export growth has helped fuel the overall global economy.

But now Chinese exports are falling.  In October, Chinese exports were down 6.9 percent compared to a year ago.  That follows a decline of 3.7 percent in September.

The numbers for Chinese imports are even worse.  Chinese imports in October were down 18.8 percent compared to a year ago after falling 20.4 percent in September.  China’s growing middle class was supposed to help lead a global economic recovery, but that simply is not happening.

The following chart from Zero Hedge shows just how dramatic these latest numbers are compared to what we are accustomed to witnessing.  As you can see, the only time Chinese trade numbers have been this bad for this long was during the major global recession of 2008 and 2009…

Chinese Imports Chinese Exports

Other numbers confirm the magnitude of the economic slowdown in China.  I have mentioned the ongoing plunge of the China Containerized Freight Index previously, but now it has just hit a brand new record low

The weakness in China’s economy and its exports to the rest of the world are showing up in the weekly China Containerized Freight Index (CCFI): On Friday, it dropped to the worst level ever.

The index, operated by the Shanghai Shipping Exchange, tracks how much it costs, based on contractual and spot-market rates, to ship containers from China to 14 major destinations around the world. Unlike a lot of official data from China, the index is an unvarnished reflection of a relentless reality.

It has been cascading lower since February and has since dropped 31%. At 742 currently, it’s down 26% from its inception in 1998 when it was set at 1,000.

Here are some more deeply disturbing global trade numbers that come from my previous article entitled “18 Numbers That Scream That A Crippling Global Recession Has Arrived“…

Demand for Chinese steel is down 8.9 percent compared to a year ago.

China’s rail freight volume is down 10.1 percent compared to last year.

In October, South Korean exports were down 15.8 percent from a year ago.

According to the Dutch government index, a year ago global trade in primary commodities was sitting at a reading of 150 but now it has fallen all the way down to 114.  What this means is that less commodities are being traded around the world, and that is a very clear sign that global economic activity is really slowing down.

Additionally, German export orders were down about 18 percent in September, and U.S. exports are down about 10 percent for the year so far.

Clearly something very big is happening, and it is affecting the entire planet.  The CEO of the largest shipping company in the world believes that the explanation for what is taking place is fairly simple

In fact, according to Maersk CEO, Nils Smedegaard Andersen, the reason why companies that are reliant on global trade, such as his, are flailing is simple: global growth is substantially worse than the official numbers and forecasts. To wit: “The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.

Quoted by Bloomberg, Andersen says that “we believe that global growth is slowing down,” he said in a phone interview. “Trade is currently significantly weaker than it normally would be under the growth forecasts we see.

Global financial markets can run, but they can’t hide from these horrifying trade numbers forever.

One of the big things that is contributing to this new global economic slowdown is the unwinding of the U.S. dollar carry trade.  A recent piece from Phoenix Capital Research explained the U.S. dollar carry trade pretty well…

When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.

And if you can borrow in US Dollars at 0.25%… and put that money into anything yielding more… you could make a killing.

A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%… locking in a $9.75 million return.

This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.

Simply put, the US Government was practically giving money away and the world took notice, borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $9 TRILLION (larger than the economy of France and Brazil combined).

But now the U.S. dollar carry trade is starting to unwind because the U.S. dollar has been doing very well lately.  As the U.S. dollar has surged against other global currencies in 2015, this has put a tremendous amount of stress on emerging markets around the world.  All of a sudden oil, other commodities and stock markets in nations such as Brazil began to crash.  Meanwhile, those that had taken out loans denominated in U.S. dollars were finding that it was taking far more of their own local currencies to service and repay those loans.  This financial crunch in emerging markets is going to take years to fully play out, and it is going to take a tremendous toll on global markets.

Of course we have seen this happen before.  A surging dollar helped cause the Latin American debt crisis of the 1980s, the Asian financial crisis of the 1990s and the major global recession of 2008 and 2009.

If you thought that the financial shaking that happened in late August was bad, the truth is that it was nothing compared to what is now heading our way.

So buckle your seat belts boys and girls, because we are definitely in for a bumpy ride.

Global Trade Is Collapsing As The Worldwide Economic Recession Deepens

Dominoes Falling - Public DomainWhen the global economy is doing well, the amount of stuff that is imported and exported around the world goes up, and when the global economy is in recession, the amount of stuff that is imported and exported around the world goes down.  It is just basic economics.  Governments around the world have become very adept at manipulating other measures of economic activity such as GDP, but the trade numbers are more difficult to fudge.  Today, China accounts for more global trade than anyone else on the entire planet, and we have just learned that Chinese exports and Chinese imports are both collapsing right now.  But this is just part of a larger trend.  As I discussed the other day, British banking giant HSBC has reported that total global trade is down 8.4 percent so far in 2015, and global GDP expressed in U.S. dollars is down 3.4 percent.  The only other times global trade has plummeted this much has been during other global recessions, and it appears that this new downturn is only just beginning.

For many years, China has been leading the revolution in global trade.  But now we are witnessing something that is almost unprecedented.  Chinese exports are falling, and Chinese imports are absolutely imploding

Growth of exports from China has been dropping relentlessly, for years. Now this “growth” has actually turned negative. In September, exports were down 3.7% from a year earlier, the “inevitable fallout from China’s unsustainable and poorly executed credit splurge,” as Thomson Reuters’ Alpha Now puts it. Most of these exports are manufactured goods that are shipped by container to the rest of the world.

And imports into China – a mix of bulk and containerized freight – have been plunging: down 20.4% in September from a year earlier, after at a 13.8% drop in August.

This week it was announced that Chinese GDP growth had fallen to the lowest level since the last recession, and that makes sense.  Global economic activity is really slowing down, and this is deeply affecting China.

So what about the United States?

Well, based on the amount of stuff that is being shipped around in our country it appears that our economy is really slowing down too.  The following comes from Wolf Richter, and I shared some of it in a previous article, but I think that it bears repeating…

September is in the early phase of the make-or-break holiday shipping season. Shipments usually increase from August to September. They did this year too. The number of shipments in September inched up 1.7% from August, according to the Cass Freight Index.

But the index was down 1.5% from an already lousy September last year, when shipments had fallen from the prior month, instead of rising. And so, in terms of the number of shipments, it was the worst September since 2010.

It has been crummy all year: With the exception of January and February, the shipping volume has been lower year-over-year every month!

The index is broad. It tracks data from shippers, no matter what carrier they choose, whether truck, rail, or air, and includes carriers like FedEx and UPS.

What major retailers such as Wal-Mart are reporting also confirms that we are in a major economic slowdown.  Wal-Mart recently announced that its earnings would fall by as much as 12 percent during the next fiscal year, and that caused Wal-Mart stock to drop by the most in 27 years.

And of course this is going to have a huge ripple effect.  There are thousands of other companies that do business with Wal-Mart, and Reuters is reporting that they are starting to get squeezed…

Suppliers of everything from groceries to sports equipment are already being squeezed for price cuts and cost sharing by Wal-Mart Stores. Now they are bracing for the pressure to ratchet up even more after a shock earnings warning from the retailer last week.

The discount store behemoth has always had a reputation for demanding lower prices from vendors but Reuters has learned from interviews with suppliers and consultants, as well as reviewing some contracts, that even by its standards Wal-Mart has been turning up the heat on them this year.

“The ground is shaking here,” said Cameron Smith, head of Cameron Smith & Associates, a major recruiting firm for suppliers located close to Wal-Mart’s headquarters in Bentonville, Arkansas. “Suppliers are going to have to help Wal-Mart get back on track.”

Similar things are going on at some of the other biggest companies in America as well.

For instance, things have gotten so bad for McDonald’s that one franchise owner recently stated that the restaurant chain is “facing its final days”

“McDonald’s announced in April that it would be closing 700 ‘underperforming’ locations, but because of the company’s sheer size — it has 14,300 locations in the United States alone — this was not necessarily a reduction in the size of the company, especially because it continues to open locations around the world. It still has more than double the locations of Burger King, its closest competitor.”

However, for the franchisees, the picture looks much worse than simply 700 stores closing down.

“We are in the throes of a deep depression, and nothing is changing,” a franchise owner wrote in response to a financial survey by Nomura Group. “Probably 30% of operators are insolvent.” One owner went as far as to speculate that McDonald’s is literally “facing its final days.”

Why would things be so bad at Wal-Mart and McDonald’s if the economy was “recovering”?

Come on now – let’s use some common sense here.

All of the numbers are screaming at us that we have entered a major economic downturn and that it is accelerating.

CNBC is reporting that the number of job openings in the U.S. is falling and that the number of layoffs is rising

Job openings fell 5.3 percent in August, while a 2.6 percent rise in layoffs and discharges offset a 0.3 percent gain in hires. Finally, the amount of quits — or what Convergex calls its “take this job and shove it” indicator because it shows the percentage of workers who left positions voluntarily — fell to 56.6 percent from 57.1 percent, indicating less confidence in mobility.

And as I discussed the other day, Challenger Gray is reporting that we are seeing layoffs at major firms at a level that we have not witnessed since 2009.

We already have 102.6 million working age Americans that do not have a job right now.  As this emerging worldwide recession deepens, a lot more Americans are going to lose their jobs.  That is going to cause the poverty and suffering in this country to spike even more, if you can imagine that.

Just consider what authorities discovered on the streets of Philadelphia just this week

Support is flooding in for a homeless Philadelphia family whose two-year-old son was found wandering alone in a park in the middle of the night.

Angelique Roland, 27, and Michael Jones, 24, were sleeping with their children behind cardboard boxes underneath the Fairmount Park Welcome Center in Love Park when the toddler slipped away.

The boy was found just before midnight and handed over to a nearby Southeastern Pennsylvania Transportation Authority police officer, who took him to the Children’s Hospital of Philadelphia.

He was wearing a green, long sleeve shirt, black running pants and had a diaper on, but did not have shoes or socks.

Could you imagine sleeping on the streets and not even being able to provide your two-year-old child with shoes and socks?

These numbers that I write about every day are not a game.  They affect all of us on a very personal level.

Just like in 2008 and 2009, millions of Americans that are living a very comfortable middle class lifestyle today will soon lose their jobs and will end up out in the streets.

In fact, there will be people that will read this article that this will happen to.

So no, none of us should be excited that the global economy is collapsing.  There is already so much pain all around us, and what is to come is beyond what most of us would even dare to imagine.

The Almighty Dollar Is In Peril As The Global ‘De-Dollarization’ Trend Accelerates

50 Dollars - Public DomainAs the Obama administration continues to alienate almost everyone else around the entire planet, an increasing number of prominent international voices are starting to question why the U.S. dollar should be so overwhelmingly dominant in global trade.  In previous articles, I have discussed Russia’s “de-dollarization strategy” and the fact that Gazprom is now asking their large customers to start paying in currencies other than the dollar.  But this is not just a story about Russia any longer.  As you will read about below, China and South Korea have just signed a major agreement to facilitate trade with one another using their own national currencies, and even prominent French officials are now talking about the need to use the dollar less and the euro more.  John Williams of shadowstats.com recently said that things have never “been more negative” for the U.S. dollar, and he was right on the mark.  The power of the almighty dollar has allowed all of us living in the United States to enjoy an extremely high standard of living for decades, but as that power now fades it is going to have profound implications for the U.S. economy.  In future years the value of the dollar will go down substantially, all of the imported goods filling our stores will become much more expensive, and it is going to cost the federal government a lot more to borrow money.  Unfortunately, with the stock market hitting all-time record highs and with the mainstream media endlessly touting an “economic recovery”, most Americans are not paying any attention to these things.

French oil giant Total is one of the largest energy companies in the entire world.  On Saturday, Total’s CEO made an absolutely stunning statement.  According to Reuters, he told reporters that there “is no reason to pay for oil in dollars”…

“Doing without the (U.S.) dollar, that wouldn’t be realistic, but it would be good if the euro was used more,” he told reporters.

There is no reason to pay for oil in dollars,” he said. He said the fact that oil prices are quoted in dollars per barrel did not mean that payments actually had to be made in that currency.

If Gazprom’s CEO had made such a statement, it would not have really surprised anyone.  But this came from a high profile French CEO.  A decade ago, it would have been unthinkable for him to say such a thing.  Wars have been started over less.  Virtually all oil and natural gas around the planet has been bought and sold for U.S. dollars since the 1970s, and this is an arrangement that the U.S. government has traditionally guarded very zealously.  But now that Russia has broken the petrodollar monopoly, the fear of questioning the almighty dollar appears to be dissipating.

And at this point even French government officials are not afraid to publicly discuss moving away from the U.S. dollar.  Just check out what French finance minister Michel Sapin said to the press this weekend

French finance minister Michel Sapin says “now is the right time to bolster the use of the euro” adding, more ominously for the dollar, “we sell ourselves aircraft in dollars. Is that really necessary? I don’t think so.” Careful to avoid upsetting his ‘allies’ across the pond, Sapin followed up with the slam-dunk diplomacy, “This is not a fight against dollar imperialism,” except, of course – that’s exactly what it is… just as it was over 40 years ago when the French challenged Nixon.

So why are the French suddenly so upset?

Could it be the fact that we just slapped the largest bank in France with a nearly 9 billion dollar fine?

The remarks come a week after Paris-based bank BNP Paribas (BNP) SA was slapped with a $8.97 billion fine by U.S. authorities for transactions carried out in dollars in countries facing American sanctions. The fine spurred debate in France about the right of the U.S. in extending its regulatory reach beyond its borders.

This is yet another example of how the Obama administration is alienating friends all over the globe.

In fact, there doesn’t seem to be anyone that the Obama administration is afraid of crossing.  Just a couple of days ago, the German press exploded in outrage when Germany arrested a U.S. spy.  Why we feel the need to spy on our friends is something that I will never figure out.

And of course our relations with Russia are probably the worst that they have been since the end of the Cold War at this point.  And as the Russians now rapidly move away from the U.S. dollar, they seem intent on bringing the rest of “the BRICS” with them.  The following is a short excerpt from a recent Voice of Russia article entitled “BRICS morphing into anti-dollar alliance“…

However, in her discussion with Vladimir Putin, the head of the Russian central bank unveiled an elegant technical solution for this problem and left a clear hint regarding the members of the anti-dollar alliance that is being created by the efforts of Moscow and Beijing:

“We’ve done a lot of work on the ruble-yuan swap deal in order to facilitate trade financing. I have a meeting next week in Beijing,” she said casually and then dropped the bomb: We are discussing with China and our BRICS parters the establishment of a system of multilateral swaps that will allow to transfer resources to one or another country, if needed. A part of the currency reserves can be directed to [the new system].” (source of the quote: Prime news agency)

It seems that the Kremlin chose the all-in-one approach for establishing its anti-dollar alliance. Currency swaps between the BRICS central banks will facilitate trade financing while completely bypassing the dollar. At the same time, the new system will also act as a de facto replacement of the IMF, because it will allow the members of the alliance to direct resources to finance the weaker countries. As an important bonus, derived from this “quasi-IMF” system, the BRICS will use a part (most likely the “dollar part”) of their currency reserves to support it, thus drastically reducing the amount of dollar-based instruments bought by some of the biggest foreign creditors of the US.

Of course the key economic player in the BRICS alliance is China.

So will China actually go along with a “de-dollarization” strategy?

Well, the truth is that China has been making moves to become more independent of the dollar for a long time, and it has just been announced that China and South Korea have signed an agreement which will mean more direct trade between the two nations using their own national currencies

China’s central bank has authorized the Bank of Communications, the country’s fifth largest lender, to undertake yuan clearing business in the South Korean capital, the People’s Bank of China (PBoC) said in a statement.

The announcement came as Chinese President Xi Jinping wrapped up a state visit to South Korea on Friday. China is seeking to make the yuan – also known as the renminbi – used more internationally in keeping with the country’s status as the world’s second biggest economy behind the United States.

Unfortunately, most Americans don’t care about any of this at all.

They don’t understand that more U.S. dollars are actually used outside the United States than are used inside the United States.  Because most of the rest of the world uses U.S. dollars to trade with one another, this has created a tremendous amount of artificial demand for our currency.  In other words, the value of the U.S. dollar is much higher than it otherwise would be, and this has enabled us to import trillions of dollars of products at ridiculously low prices.  The standard of living that we enjoy today is highly dependent on this arrangement continuing.

And our ability to fund the federal government and our state and local governments is heavily dependent on the rest of the planet loaning our dollars back to us for next to nothing.  If we actually had to pay realistic market rates to borrow money, the finances of the federal government would have already collapsed long ago.

So it is absolutely imperative for our own economic well-being that this “de-dollarization” trend not accelerate any further.  The rest of the world could actually severely hurt us by deciding to stop using the almighty dollar, and the more that the Obama administration antagonizes both our friends and our foes around the globe the more likely that is to happen.

We live in very perilous times, and the almighty dollar is more vulnerable now than it has been in decades.

If it starts collapsing, it will take down the entire U.S. financial system with it.

Let us hope that we still have a bit more time before that happens, because once the U.S. dollar collapses it will be exceedingly painful for all of us.

Finca Bayano

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