I get a bit tired of the pollyanna, head in the sand prognostications I see on a daily basis about the global economy. These reality denying twits are causing real harm by not addressing reality.
Today, I see a few articles of such surrounded by some real news, as if some news is equal to other news. It isn’t.
One is an article about durable orders being up. January 28: Durable Orders Better Than Expected – Economic Highlights Now, that is good news that usually trumps other news. We also see Canadian car parts suppliers set for high gear, more good news. We even see Japan engaging in the happy news Japan forecasts real GDP growth of 2.5 percent in year from April. The news goes on and on about how recovery is just around the corner.
Then, we also see denial.
Olivier Blanchard, the chief economist of the International Monetary Fund, last week called talk of currency wars overblown and said countries had to pull the right policy levers to get their economies back on track, with corresponding consequences for exchange rates.
However, McWilliams said the problem was that it was difficult to get countries to agree NOT to wage currency wars.
Tellingly, Chancellor Angela Merkel voiced German concerns last week that Japan might be deliberately seeking to cheapen the yen to give its exporters a competitive edge.
Ya think? Earth to Blanchard, the entire globe is in a currency war in one form or another. For what it’s worth, the ECB is not just engaged in denial, they’re full fledged delusional.
While the Fed and the Bank of Japan are expanding their balance sheets, the European Central Bank is starting to soak up some of the emergency cash it lent to banks a year ago.
The central bank said on Friday that banks would repay early 137 billion euros of cheap borrowed money.
137 billion Euros are going to be repaid? From who? From where?
But, if you look hard enough, you’ll find the real news.
Why does this news trump all the other? Because of the business Caterpillar is in. Caterpillar is the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines.
Now, Caterpillar does have strong competition, but, CAT is the benchmark. They are a global company. Many have looked to China for the imaginary global economic recovery and CAT has made a concerted effort to be in position to take advantage of it.
Here’s the point. Construction and mining are major factors in wealth creation. They are probably the two most important factors in wealth creation.
The company said it was able to sell off some of this glut in the fourth quarter, reducing the value of its inventory from the third quarter by $2 billion. Inventory levels, however, remain $1 billion above year-ago levels, and executives expect 2013 to be a “tough year.” ….
In a somber note on the global economy, Caterpillar said the “most significant favorable factor” for 2013 profit will be the absence of the ERA accounting fraud writedown, not increased demand for its machines.
If the world’s largest manufacturer of wealth creating machines doesn’t see an increase in demand for their machines, then wealth isn’t being created. Any other economic news is simply wealth being shuffled and reflections of the mad printing that’s going on around the world.