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

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 appearsto be increasingly split over its policy towards the conflict. Formany months, the policy of Prime Minister Recep Tayyip Erdoganappeared to be widely accepted: He sounded increasingly hawkish inthreatening potential military action within Syria, with thepossibility of establishing protected “buffer zones” on Syrian soil,but without ever translating his hawkish words into any action. Butover the summer, many people have turned against him, because of twomajor 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’regoing to submit a censure motion against Foreign Minister AhmetDavutoglu for putting the nation’s security at risk for allegedly supplyingweapons to the rebel Free Syrian Army: 

This is the first time that Turkey has ever beenaccused of supplying arms [to the opposition] of a neighboringcountry, and of training them in its territory. Turkey’s foreignpolicy 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 toaccelerate. In very bad economic news, manufacturing in theU.S. shrank for the third month in a row. According to one analyst,lackluster recovery but it’s starting to show some cracks. Until weget more clarity on the fiscal policy outlook here, more clarity onEurope and some signs on the course of China’s economy, manufacturingis 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 economistshave been wrong about everything for almost 20 years. To this day,mainstream economists have never explained the tech bubble of the late1990s, 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 exactlythe time when the risk-averse survivors of the 1930s Great Depressionall disappear (retired or died) all at once, leaving behindrisk-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 somuch worse than any of the preceding postwar recessions. A historicalstudy shows a correlation between financial crises and private sectorcredit, 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 Depressionspend their lives being extremely risk averse, avoiding debt as muchas possible. When these survivors disappear, they’re replaced byyounger generations with no personal memory of the last financialcrisis, so they go into debt again, creating a new financial bubble,and when the bubble bursts there’s a financial crisis, so the cyclestarts all over again.

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

At any rate, the conclusion of this research is that the currentpredictions is much gloomier: At some there will be a major worldwidepanic, comparable to but worse than the panic that occurred in October1929, 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 thelowest levels since March, 2009. Before this year, China “printed”huge amounts of money and poured it into the banking system, in orderto stimulate the economy. However, the money was used by banks tofund empty ghost towns and apartment buildings, creating a huge realestate bubble that is now bursting. This year, China cut back on thefiscal stimulus, in an attempt to prevent the real estate bubble fromworsening, but with the economy deteriorating, that government policymay have to be reversed again. China’s economy is very unstable, moreso than America’s. There are tens or hundreds of thousands of “massincidents” every year of large public protests against the governmentand Chinese Communist Party officials, and China has a long history ofhuge, bloody, genocidal civil wars. The most recent one was MaoZedong’s Communist Revolution, and China is now due for its nextmassive civil war. Bloomberg

German export orders fall sharply in August

Completing the picture of the economy slowing down all around theworld, new figures show that German exporters had their biggest dropin international orders in over three years in August. “Surveyrespondents commented on a general slowdown in global demand andparticular weakness in new business inflows from Southern Europe,”according to an analyst. At the same time, figures from the U.K. andItaly also show economic slowdowns. Spiegel

Permanent web link to this article
Receive daily World View columns by e-mail


Please let us know if you're having issues with commenting.