Here is another illustration of the Great Deformation unraveling in plain sight.Nevertheless, this particular Reuters story laments an unexpected 25% drop in exports of bulldozers and monster mining machines during 2013, and notes, incredulously, that it snapped a "three year export surge that has been one of the bright spots" in the U.S. recovery. This narrative is merely typical, however, of the bubble blindness of the mainstream financial press---of which Reuters is among the worst offenders. The implication is that Washington needs to unleash some more stimulus tools.
Feb 26 (Reuters) - Foreign sales of U.S.-made construction equipment dropped sharply in 2013, snapping a three-year export surge that had been one of the bright spots in the country's halting economic recovery, according to a report released on Wednesday by a leading industry trade group.
Yet, that only follows from the unexamined premise that wise anti-recession monetary and fiscal policies plus the inherent virtues of the American economy have been generating an organic, sustainable recovery since 2009---especially led by exports. Accordingly, the frightful days of the financial crisis and the Great Recession are safely fading into the rearview mirror, notwithstanding bumps in the road such as $5 billion collapse in exports sales of one of America's most potent and competitive manufacturing industries.
Well, the decline isn't temporary, and is not indicative of a competitive stumble by the mighty trio of Caterpillar, John Deere and Terex Corp. And most especially there is not a damn thing Washington policy makers can do about it: they should keep their stinking export subsidies and other taxpayer fleecing schemes looked in their drawer.
In truth, this sharp decline is just another developing fracture in the global economy stemming from the violent boom-bust cycle that has been generated by the world's rogue central banks. At the last boom-cycle peak in 2006-2007, the trios' heavy machinery exports hit nearly a $20 billion rate and then collapsed violently to $12 billion or by roughly 40% when world trade plunged in the winter of 2008-2009.
Soon enough, however, the Bernanke Fed was flooding the world with massive new dollar liabilities----the Fed's balance sheet went from $900 billion in September 2008 to $4.3 trillion and counting at present----and the People's Printing press of China responded by hauling in a tidal wave of these hot dollars at a furious pace. This maneuver by the red capitalist oligarchs in Beijing was to keep the RMB from soaring and it's export industries from taking an even deeper plunge--a potential disruption to China's hothouse economy so severe that it could have sent the oligarchs plunging from their perches, too.
So the People'sPrinting Press accumulated foreign exchange at a rate that defies anything in recorded financial history. From about $1.5 trillion of foreign exchange reserves when the Greenspan boom was cresting, China's reserves have soared to almost $4 trillion at present. But the red oligarchs didn't really mind the frenzied inflow of hot, yield-chasing dollars and euros. The inherent corollary of China's massive foreign exchange buying was an off-setting emission of domestic RMB. Needless to say, that's exactly what the comrades sitting atop the world's greatest economic house of cards wanted to do anyway.
If the American consumers' balance sheets were was tapped-out---and after the ratio of household debt to wage and salary income soared from a historic 80% level to 210% in 2008 they were fully cooked and done--- then Beijing would mightily tap its own balance sheets to fund the greatest infrastructure building spree since the pharaohs.
Accordingly, China money supply indicators soared by 30 percent annually, fueling the mother of all credit bubbles. Total domestic credit outstanding ("social financing") erupted from $9 trillion in 2008 to $24 trillion at present. As a computational matter, this 5-year/$15 trillion credit expansion amounts to 2X China's alleged GDP number for 2008---that is, it represents an outbreak of sheer lunacy under any known laws of sound economics.
But in the interim it turned China into a "sucking sound to the West" that would have deafened even Ross Perot. As China's credit-fueled construction machine ramped-up it sucked in hydrocarbons, alumina, iron ore, nickel, copper, coking coal, steam coal and the rest of the raw materials menu at blistering rates. This wholly artificial and aberrantly large draw on the world's raw material supply system, in turn, caused a massive scramble to expand mining, drilling, smelting, processing and shipping capacities at red hot rates. The capex budgets of the Big Three global mining companies----BHP, Vale and Rio Tinto----soared from $35 billion in 2009 to $65 billion at the 2012 peak. That amounted to one huge caravan of big yellow machines heading to Australia, Brazil, China, Mongolia and other mining pits of the world.
But global tapering time is now arriving. The red hot infrastructure maw of China is being desperately cooled-down by the new regime in Beijing least the Middle Kingdom be completely paved with empty highways, bridges, fast rail, airports, luxury condos (65 million empty and counting), shopping malls, ghost cities, shaky skyscrapers----and its financial system be crushed under huge additions to the $25 trillion of unrepayable debt which is already fast going sour.
So the great mining boom is over, and also the derivative explosion of ship-building, especially the materials hauling dry-bulk carries and oil tankers. The taper thus tumbles down the industrial food chain. In recent months the order books of the great ship-building centers in North China and Korea have literally ionized, meaning that when current backlogs are built-out demand for the previous massive tonnages of plate steel will disappear. Then China's absurdly over-grown steel industry with more than 1 billion tons of capacity will begin barfing up a tidal wave of cheap steel on world markets, causing prices to wilt and protectionism to soar.
Meanwhile, the order books of the global miners have melted down and with it their stock prices: the giant Brazilian miner, Vale, for instance, was the most leveraged to the China iron ore play and its now down 65% from the peak. Anytime soon, the Big Three miners' capex budgets will be back to 2009 levels or below. And that means, in turn, export shipments from the American heavy machinery trio will plunge back to the where they started, as well.
And this goes right to the heart of the matter. The Keynesian narrative, which is pretty much embraced lock, stock and barrel by the mainstream financial press, holds that we are in just another one of those endemic capitalist business cycles that can be remedied and revived by sufficient application of stimulus from the fiscal and central banking branches of the state.
But folks, this isn't capitalism at work! This is Bernanke, Yellen, Draghi, Carney, Kuroda, and Zhou--along with the lesser central banker culprits----bicycling the global economy in a reign of money printing madness. There is nothing linear, organic or sustainable here: Today's Keynesian central bankers inflate, inflate and inflate global borrowing, spending, investing and speculation until the markets collapse under the sheer weight of it---like housing and consumer credit in the US in 2008 and the central banker fueled EM/China infrastructure and building binge which is collapsing now.
So the US will not export its way back to Keynesian full employment. Check the export numbers: there has been no great surge in exports of consumer products, autos, machine tools, and most certainly not in computers, semi-conductors and all of the related branches of technology. What has been booming temporarily is surf-riders on the central bankers' global boom: petrochemicals and processed material from natural gas-based feedstocks, which have a fleeting advantage over the inflated cost of world-price crude oil based feedstocks, heavy machinery which has surfed the mining wave, and even coal from America's high cost eastern mines.
The truth is we are not in a business cycle---recovery or otherwise. We are in a mad-cap central bank driven process of exhausting the limits of every nations' economic balance sheet. Europe and the USA reached peak credit market debt in the 2008 cycle, and now China and its EM raw material and component supplier satellites have met the same fate. Look at the household debt ratio in South Korea: the latter would have to annex all the barren households of the north just to average it down to the still bloated consumer debt ratios in the US.
Perhaps there are some clean balance sheets left in the world---the Cameroons and Bangladesh come to mind. But as for the Reuters' lament about the 25% drop in heavy machine exports: their Cool-Aid drinking scribes who regurgitate corporate and government press releases all day have not seen nothing yet!