http://www.zerohedge.com/news/presenting-source-us-europe-decoupling-confusion
Submitted by Tyler Durden on 04/28/2012 15:21 -0400
Presenting The Source Of The "US-Europe Decoupling" Confusion
Over the past several months, starting with the great US stock market surge back in October 2011 which was not paralleled by virtually any other index in the world (and especially not Spain which recently breached its March 2009 low), there has been a great deal of speculation that just because the US stock market was doing "better", that the US economy has by implication "decoupled" from Europe. Well, as yesterday's GDP number showed in Q1 the economy ended up rising at a pace that was quite disappointing, but more importantly, which even Goldman admits is due for a substantial slow down in the coming months. And ironically, in the past 6 months it was not the Fed, but the ECB, that injected over $1.3 trillion in the banking system. One would think that this epic "flow" of liquidity from the central bank would result in a surge in the only metric that matters to 'Austrians', namely the expansion in money (or in this case the widest metric officially tracked on an apples to apples basis - M2). One would be very wrong. Because as the chart below shows, while US M2 has soared from the 2009 troughs, money "movement" in Europe has barely budged at all.
Comparing the change in "credit" between the US and Europe:
Needless to say, the lack of growth is not for lack of trying. Observe:
And:
The implications of this simple observation are rather profound:
- It elegantly confirms that any discussion of "decoupling" ha snothing to do with the absolute or relative state of the economies in question, and quite the opposite: economic state is derived based on how the market is doing, which in turn flips all the fundamental assumptions of economics on its head.
- More importantly, the core premise of Austrian price formation is validated by the mindless droning of TV anchors who constantly regurgitate "decoupling, decoupling, decoupling", when in reality all they observe is the relatively flow through of money into the broader economy (read An "Austrian View" Approach To Equity Prices for much more on this fascinating topic).
- Most importantly it shows that since European M2 has barely budged despite the trillions of new liquidity injected, that the capital shortfall hole is so very vast, that the continent's banks will need at least several trillion more (which they will, more on that tomorrow) in ECB injections before the money gets even remotely close to entering the broader economy and thus spurring not only growth, but more importantly in this day and age of endless cause-effect confusion, asset prices.
Of course, the reality that everything in this world is determined simply by a) how fast central banks print and b) how faster they print relative to each other, would make the well paid jobs of professional financial analysts who focus on such trivia as fundamentals, technicals, geopolitics and what not, obsolete.Which is why don't expect to hear much about this line of thought anywhere else. After all there are daily/weekly newsletters to be sold, soft dollars to be pocketed, and mindless screaming matches to sustain eyeballs which can then be monetized in exchange for Nielsen ratings and moderate (and declining) ad rates.and.....http://www.acting-man.com/?p=16563The Trap
The complexity of global economics has gone beyond comprehension. It can no longer be explained by any of the mostly western based and now obscure mainstream economic theories. Central bankers are in denial, still egoistically believing that their PhD diplomas have given them something akin to divine knowledge. Until they realize that they do not have the answer, they will continue down the path of destruction, never pausing to look for better alternatives.
Of all the articles I read recently, these few sentences in Annaly Capital Management's Market Commentary (pdf) just about summed it all up:“The first quarter of 2012, like the fourth quarter of 2011, was characterized primarily by heavy central bank activity. The Federal Reserve (Fed) continued with Operation Twist, which is currently scheduled to end in June 2012. The ECB completed its second tranche of Long-Term Refinancing Operations (LTRO) in February, and has provided €1 trillion ($1.3 trillion) of liquidity across both tranches. The Bank of England added an additional £50 billion ($80 billion) in February to its existing quantitative easing program, bringing it to a total of £325 ($520 billion). The Bank of Japan recently expanded its asset purchase program to ¥65 trillion ($784 billion) to be completed by the end of 2012, as well as upsizing its “Growth-Supporting Funding Facility” to ¥5.5 trillion ($66 billion) from ¥3.5 trillion.All together, the four major central banks added over $300 billion of new assets in the first quarter of 2012, and $1.6 trillion over the last year.”These numbers are mind boggling. In less than five years, five central banks (ECB, BoE, BoJ, PBoC and the Federal Reserve) increased their balance sheets by about $8 trillion in the aggregate. I "borrowed" the chart below from my cyber-friend Bart [of nowandfututures.com, ed.], who has a chart for everything under the sun.
The balance sheets of five major central banks, the Fed, the ECB, the BoE, the BoJ and the PBoC since 2003, via 'nowandfutures.com'This is advanced Ponzi economics. Instead of having to find new suckers to invest new funds, central bankers simply print whatever is needed. The prescriptions of Keynesian theory are allegedly intended to stimulate future economic activity. However, all the money created is really used to prop up the failed debt and investments of the past, with little future benefit.
I started this post with the intention of trying to determine where we are in the real estate cycle, but ultimately arrived at the following conclusion:It does not matter whether you are bullish or bearish, nor does it matter what part of the economy you are focusing on. All you have to do is answer two questions:1. Would (…. state your opinion here…..) these conditions exist without the massive amounts of central bank intervention shown above?
2. Would these conditions be sustainable if the central banks were to stop printing money?
Pertaining to real estate, my answer to the two questions is:There is no doubt that current conditions would not be possible without the Fed's intervention. Furthermore, these conditions are clearly unsustainable if the Fed terminates Operation Twist in June and does not replace it with 'QE3'.Therefore, the leading indicator for real estate is not pending home sales, new home orders, or mortgage applications but rather what Ben Bernanke's next move is.
Anyone who looked at a few micro markets and from that somehow determined that the housing market has bottomed needs to ponder and answer the two questions above.
The fact is that in spite of all the non-stop printing by the major central banks of the world, there is very little to show for it.The fact is that the US, the largest economy in the world, is heading towards the "fiscal cliff" – even Tim Geithner recognizes that.The fact is that Euro-land has already gone over the cliff.China, now the world's second largest economy….well, I have no clue what is going to happen there, except to say that the Bo Xilai story reads like a spy novel.Japan has been living off fiscal deficits. With the public debt at well over 200% to GDP, how long will it be before their past savings run out?
In conclusion, the global GDP now has as a new line item – "Income from Central Banks".Maybe John Williams of shadowstats.com can come up with the real GDP by backing out the central bank numbers.
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