US Slowdown — US Stocks Holding — Abandoning Growth — Declining Working Age Populations — Malthus was Wrong — Medical Fascism is Not the Way Forward - [12-25-2022]

Direct from BOOM Finance and Economics at the links below - Note - BOOM uses American English whereas AP uses British English

Dec 27, 2022

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THIS WEEK’S EDITORIAL

US ECONOMIC SLOWDOWN: Last week, US GDP data was released which showed that the US economy grew by 3.2% annualized for the third quarter (QoQ). Quarter on Quarter growth means that the third quarter grew by more than the second quarter of this year. That was an unexpected ray of sunshine just before the Northern Hemisphere winter. Most analysts were expecting a growth of 2.9%. However, BOOM is still expecting a weakening in the US economy for the fourth quarter.

On November 6th, BOOM said “All year, BOOM has been expecting a contraction of US GDP in the fourth quarter. If that happens as expected, then CPI inflation expectations should moderate as consumer spending falls.”

Consumer sentiment indicators show that US consumers are continuing to feel positive about the future. However, they have reduced their spending and that is ominous for the fourth quarter GDP numbers that will eventually be published next year. Reduced spending should also have a negative impact on CPI inflation during the fourth quarter which will (paradoxically) boost the confidence of investors.

Consumer spending accounts for about two-thirds of domestic final spending in the US. It is the primary engine that drives future economic growth. Thus, it is critical to watch what the US consumer is doing. Personal spending edged up by only 0.1% month-over-month in November.

This was a poor performance and now December’s spending will determine the end of year numbers in GDP and in CPI inflation. The next data release for US personal spending for December will be released on 27th January by the US Bureau of Economic Analysis. That will be a day to remember. Worth marking on your diary.

US ENERGY PRICES STILL WEAK: Despite the war in Ukraine, energy prices in the US remain weak. West Texas Crude Oil is still below US$80. And despite the freezing winter temperatures, Natural Gas Futures fell all week. This indicates that energy demand is being affected by a weakening in economic activity as the winter advances. And it underlines the thesis that the peak of US CPI inflation is well past.

US STOCKS HOLD: US stock prices held over the last week. We are at the critical point of support as measured in time. It is now almost 3 months since the Dow Jones Stock Index and the Dow Jones Transport Index hit their recent Lows in late September. BOOM picked the turning point right on target. On 16th October, BOOM wrote — “the inflation statistics and retail sales figures were a good result, offering some firm evidence that the peak of CPI inflation may be in the past. If we are past the peak, then the prices of stocks and bonds should start to rise from here“. US stock prices started rising 2 days later and US bond prices started rising 5 days later. BOOM was the only analyst on the Globe who picked this critical turning point in the financial markets.

For the US equities markets to run higher from here, they must find buyer support between now and New Year's Day or perhaps very early in 2023. BOOM is expecting that to happen. However, expectation must be confirmed by price action. Price performance of equities and bonds immediately after the 1st January will be critical for BOOM readers to watch.

ABANDONING GROWTH: Abandoning economic growth as a means to preserve precious resources is a Malthusian driven dream. It sounds logical. It sounds imperative. It sounds like it will “save the Planet”. But it does not make sense in the advanced economies where economic growth (largely) does not consume the physical resources of the planet much at all. In fact, these economies are consuming less commodities and energy as time passes. How can this be?

The answer lies in the structure of modern economies. They are predominantly services based economies, rather than goods based economies. The GDP of the advanced economies is made up of all the transactions (except asset transfers and interest payments) that occur in the economies. And the vast bulk of those transactions are based upon the provision of services. In fact, the US economy is 80% services based. Agriculture is just 1% of the GDP and industry makes up just 19%. Other advanced economies all have at least 70% services dominance and this number is steadily increasing over time.

Isn’t that stunning? Services include things such as education, professional services, technical support, transport, telecommunications, tourism, Information Technology (IT), financial services, administration, health care and social services.

Here is a quote from a report on services by Deloitte in 2018 that spells it all out elegantly — “It took centuries for the world’s economies to shift from agriculture to manufacturing, but the rise of the services sector is occurring more quickly. The world is in the midst of a radical shift, with the share of total output—world GDP—accounted for by services experiencing a sharp increase in almost all countries. Indeed, a few countries, such as India and Sri Lanka, have broken the historical convention by heading straight to services without developing a significant manufacturing sector at all. This growth in services has likely transformed not only the composition of the world’s economic production and employment, but potentially global trading patterns over the past few decades. “

So — as modern, advanced economies grow and mature, becoming more complex, they are actually consuming fewer and fewer natural resources. The Malthusians have got it all wrong and this includes the World Economic Forum and the rest of the Davos crowd. We are NOT moving rapidly towards a brick wall of economic collapse due to a shortage of natural resources — quite the opposite.

DECLINING WORKING AGE POPULATIONS: The other economic reality overlooked by many Malthusian economic “analysts” is the fact that the working age populations of almost all nations on Earth are now in steady decline — with the sole exception of the African continent.

As working age populations shrink, they require less finance. Their need for bank loans declines and, thus, the supply of fresh new money goes into decline. Older populations also use less goods and services and therefore most economies on the planet now actually face stagnation, not endless growth and endless consumption of resources.

FALLING LIFE EXPECTANCY AND BIRTHS: This argument is further bolstered in the US by recent declines in life expectancy which began way back in 2014. In 2014, an American was expected to live almost 80 years. In 2021, that expected life was reduced to just 76.1 years. And that trend seems to be continuing in 2022.

Birth rates are also in decline in many advanced economies. Some have declined by 2.5% up to 30% in the last few years. The result is lower populations unless immigration numbers come to the rescue.

MALTHUS WAS WRONG: So, in the advanced economies, we have more and more services being provided to fewer and fewer people. And, paradoxically, as a result, we are quite naturally consuming fewer natural resources as we move into the future. These trends are well established. We are not about to hit the physical resources wall or the energy wall any time soon in the advanced economies.

AFRICA IS THE EXCEPTION: In Africa, birth rates are also falling but at a lower rate compared to the advanced economies while life expectancies are not falling. In fact, they have risen dramatically over the last 20 years. Dramatic increases in staying alive eventually have a dramatic effect on economic growth. African working age populations are expected to grow throughout the rest of this century.

Africa is currently averaging between 4 – 6% annual growth in GDP. BOOM expects this level of growth to continue as African nations take advantage of increased complexity, increased availability of finance and increased trade. Natural resources are abundant in Africa so there is no likelihood of hitting a Malthusian resources wall there either.

LOOKING FORWARD TO 2023 : BOOM is optimistic about 2023 with regard to the financial markets and the economic outlook for the planet. The war in Ukraine will be settled with peace negotiations. The taming of CPI inflation will become obvious. Official interest rates will begin to fall. Energy prices will fall. China’s economy will rebound and thus improved supply chains will result. And, last but certainly not least, the US will become more politically stable due to the results from the November election.

The one dark cloud on the horizon is the continued effort by the Globalists based in Davos to seek control of all the nations on Earth. This must be resisted with as much determination and strength as possible. Their plans for a Malthusian, Authoritarian, and Transhumanist Technocracy cannot be allowed to influence national governments any further. Also, Non-Government Organizations (NGOs) who sought great power over the planet in 2021 and 2022 must also be resisted, especially the World Health Organization. Medical Fascism is not the way forward.

In economics, things work until they don’t. Until next week. Make your own conclusions, do your own research. BOOM does not offer investment advice.

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BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how global banking systems really work.

AND Watch for 4 minutes, this Bank of England explanation: Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This video describes what money is today.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models. EMAIL: gerry{at}boomfinanceandeconomics.com

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