What can be understood from Powell’s speech?

March 2-8, 2024

Big news. Gold has reached a new price peak:

Рис. 1

One can argue endlessly about what objective reasons cause such a craving for gold. But in our book “The Decline of the Dollar Empire and the End of Pax Americana,” published back in 2003, Andrei Kobyakov and I explained in detail the real role of gold. It is simply regaining its position as a single measure of value (SMV), from which it was displaced in the 1980s in favor of the US dollar.

Let us note that the model of integrating the SMV into the economy will differ from the old one, in which gold was used for direct circulation. Roughly speaking, gold will be too expensive against the backdrop of falling fiat currencies. However, it will be quite effective to use it as a scale to which will depend the recalculation of clearing operations between base currency areas (and, possibly, very private currencies of exporting countries). Well, no one denied the role of gold as a means of accumulation.

The scale of the price at which it makes sense to accumulate gold (and the peak emissions at which it makes sense to sell it) was repeatedly voiced by Mikhail Khazin and this is not exactly the place where it makes sense to discuss it. However, it can be noted that gold has not yet reached those cent levels at which its purchase becomes not very effective. Another thing is that we believe that it can be bought for long-term storage; speculation with gold makes sense only for very qualified specialists.

Macroeconomics. Production capacity utilization in Canada is at its lowest in 8 years (excluding Covid):

Canada Capacity Utilization
Рис. 2

Industrial orders in the US -3.6% per month, excluding Covid, this is the worst dynamics in 7 years:

United States Factory Orders
Рис. 3

The index of coinciding economic indicators in Japan is the weakest since the fall of 2021, and excluding Covid – since 2013:

Japan Coincident Index
Рис. 4

Building permits in Australia continue to weaken, although they are already at 2008/13 levels:

Building Approvals, Australia
Рис. 5

Prices for used cars in the US -13.1% per year, only 1% from the record low at the end of 2022:

United States Used Car Prices YoY
Рис. 6

Retail sales in the eurozone -1.0% per year, 16th negative in a row:

Euro Area Retail Sales YoY
Рис. 7

Household spending in Japan -2.1% per month, 4th negative in a row:

Japan Household Spending MoM
Рис. 8

And -6.3% per year. Not counting Covid failures, the worst dynamics in 9 years:

Japan Household Spending YoY
Рис. 9

Announcements of layoffs in the US in February are the highest for this month since 2009:

United States Challenger Job Cuts
Рис. 10

The number of unemployment benefit recipients in the US has become even closer to the top since 2021:

United States Continuing Jobless Claims
Рис. 11

US unemployment at 2-year high:

United States Unemployment Rate
Рис. 12

As well as the broader unemployment rate (U6), which reached 7.3% (peak since late 2021):

United States U-6 Unemployment Rate

Let me remind you that labor statistics in the United States are very seriously distorted in favor of improving indicators. Therefore, you should not believe absolute numbers, but most likely they show trends. However, there is a question here too, since, as the working week graph shows, the situation improved in February:

United States Average Weekly Hours
Рис. 14

Although it continues to be within the framework of a three-year downward trend (as we have noted more than once, a structural decline began in the United States in the fall of 2021).

The Central Bank of Canada left monetary policy the same, as did the ECB, where the key rate is at a 22-year peak. US Federal Reserve Chairman Powell said in his semi-annual report to Congress that it would be appropriate to talk about cutting rates only when inflation confidently shows its intention to fall below 2% (for more details, see the next section).

Main conclusions. The structural crisis continues as it should and as described it in theory. At the same time, the tendency towards falling incomes of the population is becoming more and more evident, not only in the EU and other countries and regions, but also directly in the USA. Here is Pavel Ryabov’s analysis:

Рис. 15

“Net savings as a percentage of gross national income (GNI) in the United States fell into negative territory for the first time since the crisis of 2008-2009 and 2020.

How to interpret this indicator? Net savings is the difference between a country’s total savings, including savings from both the private (business and household) and public sectors, and total depreciation (wear and tear and loss of value of fixed assets).

Net savings of a business are retained earnings after taxes, fees and dividends, adjusted for inventories and depreciation of capital. Net savings of the state are determined by the size of the budget balance.

Net national saving allows us to see how much resources remain from income after current consumption and depreciation of capital/fixed assets.

Net savings to GNI shows the future development resource, how much net income is accumulated for future investments, rather than spent to maintain existing consumption.

A zero or negative coefficient means that national income is distributed on consumption and there are no resources for development, which has delayed consequences in the form of a fall in investment and a slowdown in economic growth or the implementation of a crisis. Now the economy does not generate resources even to maintain consumption and the amount of capital depreciation, which means excess consumption and low national efficiency of economic reproduction.

What does it mean? Low national savings are mirrored by high government borrowing as a substitute for private sector resource shortages to support consumption and investment activity.

Data is only available for 3Q23 (six months late), but this is already the third quarter in a row of negative savings, which automatically inflates the state budget deficit.

During the 2008-2009 crisis, there were 10 consecutive quarters of negative savings (from 1Q08 to 2Q10) and only in 2012 they turned into a stable plus, and that’s when the economy began to grow.”

Let us note that in terms of importance this information would be the main news of the week, but since this is already a fairly long-term trend, which we have repeatedly noted, it is still not included in the first section. In any case, we add that the United States has “eaten up” its development resource and today it can restore the real sector of the economy exclusively at the expense of foreign markets. Another question is whether they have the resource for this.

Fed Chairman Powell spoke before Congress this week. Basic points of his speech:

“- incoming macro data will determine when the Fed rate cut will begin;

– the balance will depend on the US economy;

there is some confidence in a further reduction in inflation in the country, but still we need even more… a little more data;

the labor market dictates that we need to think carefully about all our actions. It is necessary to approach the issue of reducing rates carefully;

– it’s more important to do everything right, not quickly;

– the pandemic has permanently changed our understanding of inflation problems;

– we use our tools to support the labor market and economic sustainability;

– there is no reason to think that the US economy is on the verge of falling into recession;

– I believe that we are on the way to a “soft landing” of the economy;

– the economy may continue to grow steadily this year;

– the problems of regional banks are manageable.”

Powell did not say any new theses, but some conclusions can be drawn from his speech. Last summer, noting how nervous Powell was, we suggested that he was given a tight deadline to correct the situation. The situation, as is clear, did not improve, but Powell began to talk about long terms (“not quickly, but correctly”). What is this connected with?

It seems to us that the reason is Trump’s phenomenal success. The logic of last year was that those forces (transnational financiers, the elite of the “Western” global project) that stand behind Biden planned to remain in power following the election results. And today they are clearly ready to give way to the alternative elite groups behind Trump. And, accordingly, financiers are now interested not in preventing a collapse before the elections, but in making the transition to economic growth as difficult as possible for the new Trump administration.

From the point of view of our theory, this is in any case impossible in the next 3-4 years (the structural crisis will continue until a state of economic equilibrium is achieved). In official GDP indicators, the collapse of the financial market bubble could lead to a sharp decline, but in real US GDP indicators (according to our estimates, somewhere around $15-16 trillion before the onset of covid), the rate of decline will remain the same, 6-8%. per year, taking into account state support.

In any case, the likelihood of a crisis has increased significantly this year. However, our readers, who are forewarned and therefore armed, should not worry about this; for them, this crisis will become a time of opportunity. Therefore, we wish them a pleasant weekend (for those who celebrate March 8, World Women’s Day, special congratulations) and get down to business with fresh energy!


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