World View: U.S. Manufacturing Contracts at Sharpest Rate in Over Three Years

This morning's key headlines from
  • Turkey's government flails over issues of Syrian refugees and PKK attacks
  • U.S. manufacturing contracts at sharpest rate in over three years
  • New study explains why this financial crisis is worse than previous recessions
  • China's economy continues to deteriorate, threatening social unrest
  • German export orders fall sharply in August

Turkey's government flails over issues of Syrian refugees and PKK attacks

After almost 18 months of Syrian conflict, Turkey's government appears to be increasingly split over its policy towards the conflict. For many months, the policy of Prime Minister Recep Tayyip Erdogan appeared to be widely accepted: He sounded increasingly hawkish in threatening potential military action within Syria, with the possibility of establishing protected "buffer zones" on Syrian soil, but without ever translating his hawkish words into any action. But over the summer, many people have turned against him, because of two major problems: 

  • The Kurds in eastern Syria have become free of Damascus and are able to govern themselves, and talking about joining up with Kurds in Turkey, Iraq and Iran to form an independent Kurdistan, something that's been a dream at least since World War I. The result has been an extremely bloody summer in Turkey, with numerous terrorist attacks, kidnappings of Turkish officials, and bombings of public buildings by the Kurdistan Workers’ Party (PKK). Many people are blaming Erdogan's policy for allowing this to happen.
  • The number of refugees fleeing Syria for neighboring countries dramatically increased in August to over 100,000, many going into Turkey. Turkey how has more than 80,000 refugees, and is making plans to handle at least 150,000 refugees.

Leaders of Erdogan's main opposition party have announced that they're going to submit a censure motion against Foreign Minister Ahmet Davutoglu for putting the nation's security at risk for allegedly supplying weapons to the rebel Free Syrian Army: 

This is the first time that Turkey has ever been accused of supplying arms [to the opposition] of a neighboring country, and of training them in its territory. Turkey’s foreign policy is turning into a disgrace.

Turkish Weekly and Guardian and Hurriyet (Ankara)

U.S. manufacturing contracts at sharpest rate in over three years

The global economic slowdown that began late last year continues to accelerate. In very bad economic news, manufacturing in the U.S. shrank for the third month in a row. According to one analyst, "Manufacturing has been one of the stalwarts of an otherwise lackluster recovery but it’s starting to show some cracks. Until we get more clarity on the fiscal policy outlook here, more clarity on Europe and some signs on the course of China’s economy, manufacturing is just going to languish." Bloomberg

New study explains why this financial crisis is worse than previous recessions

I've been pointing out endlessly for years that mainstream economists have been wrong about everything for almost 20 years. To this day, mainstream economists have never explained the tech bubble of the late 1990s, why it occurred at all, and why it occurred at that time, instead of ten years earlier or later. They have absolutely no clue, when the obvious explanation is generational -- the 1990s was exactly the time when the risk-averse survivors of the 1930s Great Depression all disappear (retired or died) all at once, leaving behind risk-ignorant Boomers to run things. 

Now mainstream economists at the National Bureau of Economic Research (NBER) are trying to find an explanation why this "recession" is so much worse than any of the preceding postwar recessions. A historical study shows a correlation between financial crises and private sector credit, much stronger than the correlations with money supply growth, current account deficit, or increase in public debt.

This is one of these "Duhhhh" moments. As I've been saying for years, the survivors of a major financial crisis like the Great Depression spend their lives being extremely risk averse, avoiding debt as much as possible. When these survivors disappear, they're replaced by younger generations with no personal memory of the last financial crisis, so they go into debt again, creating a new financial bubble, and when the bubble bursts there's a financial crisis, so the cycle starts all over again.

This is obvious, elementary stuff, but mainstream economists seem to have some switch turned off in their brains that make it impossible for them to see even the most obvious generational explanations.

At any rate, the conclusion of this research is that the current "recession" will go on for many years. The Generational Dynamics predictions is much gloomier: At some there will be a major worldwide panic, comparable to but worse than the panic that occurred in October 1929, leading to the worst financial crisis in history. The Economist and National Bureau of Economic Research

China's economy continues to deteriorate, threatening social unrest

Manufacturing is also contracting in China, in some sectors to the lowest levels since March, 2009. Before this year, China "printed" huge amounts of money and poured it into the banking system, in order to stimulate the economy. However, the money was used by banks to fund empty ghost towns and apartment buildings, creating a huge real estate bubble that is now bursting. This year, China cut back on the fiscal stimulus, in an attempt to prevent the real estate bubble from worsening, but with the economy deteriorating, that government policy may have to be reversed again. China's economy is very unstable, more so than America's. There are tens or hundreds of thousands of "mass incidents" every year of large public protests against the government and Chinese Communist Party officials, and China has a long history of huge, bloody, genocidal civil wars. The most recent one was Mao Zedong's Communist Revolution, and China is now due for its next massive civil war. Bloomberg

German export orders fall sharply in August

Completing the picture of the economy slowing down all around the world, new figures show that German exporters had their biggest drop in international orders in over three years in August. "Survey respondents commented on a general slowdown in global demand and particular weakness in new business inflows from Southern Europe," according to an analyst. At the same time, figures from the U.K. and Italy also show economic slowdowns. Spiegel

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