Last February I wrote
If emerging markets has been attributed by some as having pulled out the global economy from the recession of 2008, now will likely be the opposite dynamic, the ongoing mayhem in emerging markets are likely to weigh on the global economy and equally expose on the illusions of strength brought upon by credit inflation stoked by inflationist policies.
Mainstream institutions have only begun to recognize the contagion aspect of the above quote.
From Reuters:
Advanced economies will increasingly have to drive the recovery as formerly fast-growing developing economies falter, the OECD said on Tuesday, as it downgraded its outlook for growth.The world economy is set to grow 3.4 percent this year before accelerating to 3.9 percent next year, the Paris-based Organisation for Economic Cooperation and Development said.
The OECD follows the IMF whom also trimmed its outlook fro global economic growth in early April due to “ anemic output in Europe and Japan hobble the recovery and emerging markets struggle with rising borrowing costs”.
The OECD "hopes" that advanced economics will offset growth woes of emerging markets. This is unlikely because—again as I wrote last February: (bold original)
if the adverse impact of emerging markets to the US and developed economies won’t be offset by growth (exports, bank assets and corporate profits) in developed nations or in frontier nations, then there will be a drag on the growth of developed economies, which would hardly be inconsequential. Why? Because the feedback loop from the sizeable developed economies will magnify on the downside trajectory of emerging market growth which again will ricochet back to developed economies and so forth. Such feedback mechanism is the essence of periphery-to-core dynamics which shows how economic and financial pathologies, like biological contemporaries, operate at the margins or by stages.
We have already seen clues of such feedback mechanism with the US barely posting a positive growth (.1%) during the first quarter.
But the mainstream continue to cheer on the data that the U.S. added 288,000 jobs in April, “the biggest spike since January 2012”.
But this florid growth figures comes with a kink; a large number of Americans have been dropping out of the work force
Reports the Marketwatch Blog
Yet the size of the labor force sank by 806,000. That’s the biggest drop since a 848,000 plunge in October and you have to go all the way back to 1981 to find another 800,000-plus decline. Labor-force changes are measured by the “household” survey that interviews Americans directly.
The chart above from Northern Trust reveals to us the secret of how the US economy will reach a full employment—a zero bound work force!
Yet analyst Peter Schiff tells us that the basis for the big boost in jobs have been questionable, Mr Schiff notes “that more than 80% of the 288,000 jobs came from birth/death assumptions the government makes about the net number of new companies that formed during the month and the number of people those companies would have been expected to hire”.
And Mr. Schiff’s observation seem to be consistent with a study from Brooking institutions that exhibits “US businesses are being destroyed faster than they're being created” as quoted by the Zero Hedge.
In other words, the basis for the mainstream's "hope" via the birth/death assumptions may not be representative of actual conditions.
In addition, the quality of where jobs have been added, according to Mr. Schiff have been in the “in low-paying service sector and retail jobs”
These are manifestations of the transitions of the periphery to core dynamic of the bubble cycle in progress.
OECD’s "hope" seems now anchored entirely on the US whom has been weightlifting the world from a global Black Swan.
Yet much of the global financial markets (particularly the stock markets) have been in a one way trade founded on the same hopium. The US now holds the key as to whether the one way trade will be sustained or not.
All eyes on the US now.
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