Misery Economic Theater 2011

[ewmayer]

I am pleased to open the 2011 installment of the 2010, the 2009 and the 2008 "All Things Economic" threads.

The 2010 thread ended up with over 800 posts and over 18,000 views - thanks to all who contributed to the discussion. (Note that the 2009 installment ended with over 900 posts and over 22,000 views - not sure if the decrease is a result of deflation, "recession fatigue" or less diligence on my part as thread-spammer-iin-chief.)

I have no particular Top-10 list of predictions to share for 2011 ... Mish's list (which I linked to and commented on near the end of the 2010 thread) is pretty close to mine, and I am highly confident of 3 main things:

1. Governments and central banks in major debt-wracked countries will continue doing everything in their power (and quite a few things outside it) to protect the global banking and financial cabal. In the U.S., I expect in particular to see an attempt to retroactively legalize (or forgive on exceedingly lenient terms) the colossal fraud now coming to light which permeated the entire mortgage-involved financial food chain during the housing bubble, from home appraisals to mortgage processing to securitization and now to foreclosure. This could get very interesting, though, because many of the pension and investment funds which ended up buying the toxic result of the process have deep pockets and are lawyering up in a big way.

2. The U.S. government will continue to try to work the structural economic problems facing the nation from the completely wrong end, that is, continuing to stimulate consumer overconsumption, that is, trying to borrow and spend the nation out of a deep economic hole caused by too much borrowing and spending.

3. The mainstream media will continue furiously pumping the" everything's coming up roses" meme - collective bullishness and the amount of self-congratulatory back-slapping at the end of 2010 are both at highs not seen since 2007 - and very, very few of the mainstream media and economic pundits will seriously address the central issue of: "If there is not the earnings power to sustain it, how can it be sustained?" But I suspect behind the scenes in the circles of power an increasing number of people will be asking "if this is a recovery, where are the jobs?" and perhaps wonder whether the fact that the "jobless recovery" phenomenon has gotten progressively worse coming out of each of the past 3 recessions. At the same time, the manipulation of official government data in order to present a rosy illusion will reach ridiculous extremes - for example, the very last weekly jobless claims numbers of 2010 "looked great" as they dropped below 400,000, but that number included a whopping "seasonal adjustment" which reduced the actual claims by 150,000, with no credible explanation why the SA was so much larger than both for the previous week and for the same week of the previous year. (The non-SA claims number in fact deteriorated, but that number was lost in the glare of the manipulated "headline" number.)

-------------------------------------------

I would be remiss if I failed to score my predictions for 2010: Here they are (in italics), with my comments interspersed:

MAJOR PREDICTIONS:

- In the U.S., the bailed-out GSEs (along with FHA, "the new Countrywide Financial") and automakers will continue to bleed (GM and Chrysler seem to be trying to outdo each other in terms of the "sell fewer cars, each at a hefty loss!" business model), commercial real estate will finally run out of Ponzi-debt-rollover options and blow sky high, multiple states will similarly blow budget gaskets and go crying to DC for bailouts, and official unemployment will stubbornly remain at or around 10% while real unemployment continues to creep steadily toward 20%. Once the market bulls who have deluded themselves into believing that one can have a robust V-shaped recovery in the presence of massive unemployment, unprecedented household and federal debt levels and a generational retrenchment of consumers from credit-overdose to reality-is-frugality mode, the markets will once again threaten to retest the March 2009 lows and yet another desperation "Stimulus 2: Now Even Bigger and More Wasteful" government-giveaway will get announced. Republicans will jump all over this with cries of "Obamanomics has failed", while Democrats will cry that "We didn't cause the bad economy, we're simply trying our best to make it worse".

Automakers were mixed - Ford did pretty well and GM had a successful IPO, though whether it is really selling cars or booking deliveries to dealers as "sales" will only become clear after several more quarters. CRE limped along for another year but no major blowups. States - led by Illinois and California - are indeed in dire straits, but avoided blowup so far via a combination of accounting tricks, backdoor bailouts from the government (CA borrowing over $10 billion from the feds to pay unemployment benefits, for example), jacking up of taxes and fees, cutbacks in services, and to a much-lesser extent, cutbacks in headcount and public-employee compensation.

- Even though the U.S.'s economic woes are a thoroughly bipartisan issue, during the Fall 2010 elections frustrated voters will punish the party in power. Just-voted-out democrats will engage in a woeful chorus of "but we inherited all these problems from Bad Bush!"

Spot-on with that one.

- In the European (dis)Union, multiple governments will suffer debt crises. Rumors of sovereign default will spread, as the countries with the most-dire balance sheets (e.g. Greece, Dubai, Spain, Ireland, one or more of the Baltics, Mexico, maybe even Japan) and limited ability to cram below-market-interest-rate debt down the throats of codependent borrowers - a privilege the U.S. currently is abusing to the fullest - run out of "extend and pretend" options. Whether any of these turn into outright defaults or whether the rest of the world cobbles together huge bailout packages (funded by - ta da! - more debt issuance by the bailer-outers) remains to be seen. "We simply cannot allow [X] to fail" will again become a vogue phrase.

Another hit - Greece and Ireland bailed out, credit issues spreading to larger countries like Portugal and Spain, so far "huge bailout packages" coupled with forced (and in the case of Greece, faux) austerity were the attempted solution.

- The U.S. Fed will continue to shock and awe with its never-ending bag of tricks for backdoor bailouts of the banks and monetization of the skyrocketing balance-sheet debt. However, increasingly-skeptical pundits and lawmakers will call bullshit on the flagrant monetization. Despite the best efforts of numerous Bank-owned lawmakers and Fed-owned economists, "Audit the Fed" will become a very imminent threat, at which point the banksters, knowing that their free-money punch bowl is about to get taken away, will panic and financial shares will sell off big-time.

Bingo on the never-ending bag of tricks (QE2), some progress on the "audit the Fed" front, but no sign yet of the punch bowl seriously being under threat.

WILDCARDS:

- The banks, which still have trillions in off-balance-sheet garbage they have not been able to offload at par onto Uncle Stupid, and which will find it hard to continue issuing new play-money shares at government-market-pump-inflated prices. Gradual withdrawal of free-play-money liquidity by various central banks (the U.S. will be among the last of these) will expose much remaining weakness in the banking sector.

Clear miss on the withdrawal-of-liquidity prediction.

- The bond markets: The U.S. needs to issue a record amount of debt next year to keep its Ponzified economy lubricated. If the Fed starts losing control of long-bond (and the closely correlated mortgage) rates, the "housing recovery" and all the associated feel-goodiness will come to a screeching halt.

This one is still a bit too early to tell - interestingly, after hitting record lows in advance of Bernanke's QE2 announcement, long-bond and mortgage rates have indeed climbed relentlessly. Keep your eyes on this one.

- Emerging markets: The biggest of these, China, only kept its export-dependent economy from outright implosion this year by way of a free-money bonanza well in excess of 10% of GDP. As a result, China equity and property markets are once again in bubble mode, as exports remain very weak, albeit better than the catastrophic levels of early this year. But inflating a second credit bubble to help allay the effects of the bursting of the first one is just silly.

- China has helped keep prices of oil and other commodities artificially high via massive stockpiling - you can't really blame them, because they really need to offload as much of their US$ holdings as they can, and buying commodities is one of the few ways for them to do so which provides guaranteed value. (They seem intent not to repeat the late-1980s Japanese mistake of using their surplus dollars to buy massively-overpriced U.S. commercial real estate). But there is simply no economic justification for $80 oil at present. On the other hand...

China bubble still intact. Interestingly, inflation rearing its ugly head there.

- If Israel decides that it has had enough of nice-sounding but completely useless Obama-and -Eurodiplomat-talk regarding Iran's nuclear program, oil prices could skyrocket. This would of course put the kibosh on any remaining "nascent U.S. economic recovery" talk.

This remains an active wildcard, and is joined by the Korean peninsula as an at-least-as-great powderkeg threat.

[Calvin Culus]

Originally Posted by ewmayer

The 2010 thread ended up with over 800 posts and over 18,000 views - thanks to all who contributed to the discussion. (Note that the 2009 installment ended with over 900 posts and over 22,000 views - not sure if the decrease is a result of deflation, "recession fatigue" or less diligence on my part as thread-spammer-iin-chief.)

It's likely the result of members boycotting the soap box, as Minitrue will delete every post that exposes its doublethink.

[cheesehead]

How about Krugman's prediction?

"The New Voodoo"

http://www.nytimes.com/2010/12/31/op...me&ref=general

(with my underlining)

. . .

... But 2010 marked the emergence of a new, even more profound level of magical thinking: the belief that deficits created by tax cuts just don’t matter. For example, Senator Jon Kyl of Arizona — who had denounced President Obama for running deficits — declared that “you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans.”

It’s an easy position to ridicule. After all, if you never have to offset the cost of tax cuts, why not just eliminate taxes altogether? But the joke’s on us because while this kind of magical thinking may not yet be the law of the land, it’s about to become part of the rules governing legislation in the House of Representatives.

As the Center on Budget and Policy Priorities points out, the incoming House majority plans to make changes in the “pay-as-you-go” rules — rules that are supposed to enforce responsible budgeting — that effectively implement Mr. Kyl’s principle. Spending increases will have to be offset, but revenue losses from tax cuts won’t. Oh, and revenue increases, even if they come from the elimination of tax loopholes, won’t count either: any spending increase must be offset by spending cuts elsewhere; it can’t be paid for with additional taxes.

So if taxes don’t matter, does the incoming majority have a realistic plan to cut spending? Of course not. Republicans say that they want to cut $100 billion in spending, which is itself small change in a $3.6 trillion federal budget. But they also say that defense, Medicare and Social Security — all the big-ticket items — are off the table. So they’re talking about a 20 percent cut in what’s left, which includes things like running the judicial system and operating the Centers for Disease Control and Prevention; they have offered no specifics about where the cuts will fall.

How will this all end? I have seen the future, and it’s on Long Island, where I grew up.

Nassau County — the part of Long Island that directly abuts New York City — is one of the wealthiest counties in America and has an unemployment rate well below the national average. So it should be weathering the economic storm better than most places.

But a year ago, in one of the first major Tea Party victories, the county elected a new executive who railed against budget deficits and promised both to cut taxes and to balance the budget. The tax cuts happened; the promised spending cuts didn’t. And now the county is in fiscal crisis.

. . .

But Nassau County shows how easily responsible government can collapse in this country, now that one of our major parties believes in budget magic. All it takes is disgruntled voters who don’t know what’s at stake — and we have plenty of those. Banana republic, here we come.

Remember: it's more important to the GOP to try to ruin Obama's chances for re-election than it is to do what's best for the nation. Republicans would call Democrats "traitors" if the situation were reversed.

[ewmayer]

Originally Posted by cheesehead

How about Krugman's prediction?

Krugman's relentless advocacy that deficits caused by misguided stimulus spending don't matter is just as ludicrous as the tax-cut-related magical thinking for which he derides the GOP's Kyl.

But Krugman's budget numbers are a good starting point for a bit of basic arithmetic neither party has had the stomach to engage in, at least publicly: That is that of the $3.6 trillion (it looks better if you write it out as $3,600,000,000,000) federal budget, nearly $1.6 trillion last year, or close to 50%, was borrowed. (The government's lower official figure does not include borrowings from social security and Medicare "trust funds"). Cutting *all* discretionary spending in its entirety would not come close to covering the shortfall. So while the details of the partisan wrangling in the coming months will lead to rivers of spilt digital ink and no small amount of entertainment for those who recognize it as the substance-free budgetary Kabuki theater it is, it won't change a thing about the basic fact that the U.S. is wildly insolvent, our leaders haven't the foggiest clue how to get us back even to the "rigorous fiscal austerity" of the first 7 years of the disastrous W. Bush presidency, and the only thing standing between us and a collapse of either the currency or the government (or both) is the need of our creditors to believe they are going to get paid and that the whole thing will turn out to be something other than what it is, namely the biggest Ponzi scheme in history.

But until the the inevitable cutting up of the proverbial Federal credit card occurs, party like it's 1999.

Sorry to be such an aguafiestas on only the 2nd day of the new year, but you did ask. ;)

[only_human]

European nations begin seizing private pensions
Hungary, Poland, and three other nations take over citizens' pension money to make up government budget shortfalls.

http://www.csmonitor.com/Business/Th...ivate-pensions

[ewmayer]

Krugman`s latest op-ed, Deep Hole Economics, correctly puts the focus opn the "it`s the jobs, stupid" issue, but while proposing a depression-era WPA-style government jobs-creation effort, he fails to mention whether the first Obama administration stimulus package (which included hundreds of billions of $ allegedly for that very purpose) was actually effective at creating meaningful numbers of jobs or fixing infrastructure on an extent which would justify its cost. That`s the problem with über-Keynesianites like Mr. K: First they fail to recognize that depression-era public-works projects, while they did serve as a productive form of unemployment assistance (in stark contrast to the paying-people-to-sit-on-their-sofa welfare we do today), failed to provide any lasting economic recovery, and they fail to mention the effects of laws passed since the GD which effectively mandate gross overpayment for such make-work jobs. Specifically, the Davis-Bacon act mandates payment of "prevailing wage", meaning that a pothole filler who should be thrilled to get minimum wage now must be paid the same as a full-time road-crew employee of his city gets, which is almost always way to much, because if it weren't, city budgets across the nation would not be in such dire shape, despite record-high taxes in most cases. You can repair a whole lot more infrastructure at $10-15$ per hour than you can for $30-50.

And speaking of debt and deficits, a little amusement in advance of the upcoming faux-debate about raising the U.S. government`s oh-so-upwardly-mobile "debt ceiling":

Who said It?

See if you can guess who said the following in 2006 before you click the link (Courtesy of ZeroHedge):

Who Said It?

"The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better."

[cheesehead]

Regarding the December 30 and 31 posts of the 2010 thread:

Ernst quoted some numbers from a zerohedge.com article:

        Total jobs by sector (in thousands)
Year    Government    Manufacturing    (G/M), in %    Absolute Change vs
----    ----------    -------------    -----------    previous decade
1970        12,687           17,848          71.1%    ---------------
1980        16,375           18,733          87.4%        +16.3%
1990        18,415           17,695         104.1%        +16.7%
2000        20,790           17,263         120.4%        +16.3%
2010        22,261           11,648         191.1%        +70.7%

and then he and I opined about, and DarJones mentioned, the decline in manufacturing jobs.

But the three of us referred to that decline in isolation from consideration of manufacturing output or productivity. (I, at least, simply didn't think about that at the time.)

Just now I heard an interview with the president of MIT, Susan Hockfield. Among other things, she said that the current US share of world manufactured goods, 23%, is the same as it was in [1970 or 1980, I think], because of productivity gains. (When I briefly googled for confirmation, I found many statements about imports and exports -- but her figure was for totals including domestic consumption, which I didn't find in my quick search.)

Thus, the decline in manufacturing workers does not necessarily imply a decline (or indeed even a slowing of increase) in manufacturing output. Instead, the shifts of job percentages may say more about the relative productivity gains in different work categories and relative consumption changes between different categories. We're consuming more services now than we did before. That may be good or bad, but at least it needs to be considered alongside the bare jobs figures when attaching some meaning to those figures.

My experience with "Made in China" might be at least partly a shift from "Made in Japan" or "Made in xxxxx" years ago when I didn't particularly care about countries of origin. I haven't actually recorded my observations in that regard. China's manufacturing has been more in the news in recent years when I've paid attention. And in the 1970s-1980s when I twice bought made-in-Japan cars, I wasn't as concerned about "buying USA" as I was when shopping more recently.

[ewmayer]

Originally Posted by cheesehead

Just now I heard an interview with the president of MIT, Susan Hockfield. Among other things, she said that the current US share of world manufactured goods, 23%, is the same as it was in [1970 or 1980, I think], because of productivity gains. (When I briefly googled for confirmation, I found many statements about imports and exports -- but her figure was for totals including domestic consumption, which I didn't find in my quick search.)

Thus, the decline in manufacturing workers does not necessarily imply a decline (or indeed even a slowing of increase) in manufacturing output. Instead, the shifts of job percentages may say more about the relative productivity gains in different work categories and relative consumption changes between different categories.

A good point to consider there, and I would appreciate links to data going back further, but at least for the past 2 decades Ms. Hockfield's statement does not hold. First off, the claim does not square with data which show the non-productive parts of the US economy (the so-called FIRE economy, finance/insurance/real-estate, plus government, healthcare, etc) have grown relentlessly as a fraction not only of employment but also of GDP. I provide some links further down which indicate US share of global manufacturing output has decreased from 28% to 21% in the past 20 years.

I found an excellent 2004 academic article about this - I highlight some key snips from the "US and UK" section. The article notes that it is not only manufacturing *employment* which has fallen over the past few decades in the US and UK, but also the manufacturing trade *balance*, which is hard to reconcile with the claim that the US share of global manufacturing has stayed roughly constant over that time period. The "recession" the 2004 piece talks about is the 2000-2001 recession, but the main trends have persisted:

De-industrialisation and the balance of payments in advanced economies

The USA and the UK compared

The rest of this paper will focus mainly on the USA and the UK. These countries exhibit some important similarities. They are regarded as two of the more dynamic OECD economies and are often held up as models by those urging economic reform in Europe and Japan. In both countries, a widely praised economic performance has been accompanied by a prolonged and massive fall in the employment share of manufacturing. Both countries have experienced a prolonged decline in their manufacturing trade balance and, in both of them, this balance is now in deficit. There are also important differences. The USA has the world's strongest manufacturing sector, whereas manufacturing in the UK is in perennial difficulty. Although both countries now have a large deficit in their manufacturing trade, the significance of this deficit is different. The American deficit is financed by borrowing abroad and is probably not sustainable over the long run. The British deficit, on the other hand, is largely covered by income from overseas investments and by the rapidly growing earnings from knowledge-based services. Thus, although the UK has a much weaker manufacturing sector than the USA, its external position taken as a whole is stronger.
...
Over the period 1960–2003 as a whole, productivity growth has been similar in the UK and the USA. It was faster in the UK during the earlier years and slower later on. Over most of the period, the absolute number of workers employed in American manufacturing was roughly constant, and sustained productivity growth was matched by rising output. However, things were somewhat different during the recent recession. During this recession, manufacturing production stagnated, while productivity growth continued at a fast pace, with the result that the absolute number of people employed in this sector fell sharply. This development partly reflects the impact of foreign competition on the US manufacturing sector, which has seen the loss of low-tech jobs to China and some high-tech jobs to India. It may also be partly a cyclical effect that will be reversed if the present output recovery is maintained. The picture is very different in the UK, where the manufacturing sector has experienced 30 years of almost stagnant output. Combined with rapid productivity growth, this has led to a truly dramatic fall in employment. At its peak, British manufacturing industry employed more than 8 million workers. Today the figure is around 4.5 million.

My Comment: Actually, the decline-from-peak of 43.8% in the UK in 2004 is not terribly greater than the present-day US, where manufacturing jobs declined by 37.8% from 1980 to 2010; the key difference is that the US lost the bulk of its manufacturing jobs more recently.

The contrast between the two economies can be summarised as follows. Until the recent recession, productivity growth in American manufacturing served mainly to increase output, whereas in Britain it served mainly to reduce employment. These statements refer, of course, to aggregates. The comparative stability of aggregate employment in American manufacturing conceals the fact that some industries in this sector lost workers, while others gained workers. Likewise, the near stagnation of manufacturing output in Britain conceals the fact that output fell in some industries and increased in others. However, this does not invalidate the main point.

3.2 International trade

By definition, the manufacturing trade balance is equal to national production of manufactured goods minus national expenditure on such goods. Figures 5 and 6 show what has happened to these items in Britain and America. In both of these countries expenditure on manufactures has outstripped national production, with the result that both of them have a growing deficit in their trade balance in manufactures. The production of manufactures has grown much faster in America, but this has been surpassed by an even faster growth of expenditure on manufactures.

My Comment: This economics blogs has a nice graphic showing manufacturing output by various countries between 1990 and 2008. From 1990 to 2008 the US` global share declined from 28% to 24%, with the notable exception of a big upward upward bump ceneterd around 2000, most likely due to the distortive effects of the dotcom bubble. Total manufacturing employment remained roughly constant from 1990-2000 but then entered a rapid decline, which interestingly was not arrested by the housing bubble - that led to a big rise in construction and related jobs (but apparently not domestic *manufacturing* jobs), which evaporated very quickly once the bubble popped. Since 2008, US share of global manufacturing output has continued to slide, Wikipedia cites it at 21% in 2010.

Also, my problem with the economists` apparently worshipping of "productivity" as being good for the economy is that it can (and has) masked a hemorrhaging of relatively high-wage jobs, with an ever-dwindling number of folks doing a fabulous job of producing ever-higher value-add goods, while the ones that get "productivized" out of those jobs face long-term unemployment or new lower-wage jobs as burger flippers and Walmart greeters. This is the "hollowing out" of the American middle calss wage base I have talked about repeatedly. Corporations are making fabulous profits, but those profits are accruing to ever-fewer people.

[cheesehead]

Originally Posted by ewmayer

A good point to consider there, and I would appreciate links to data going back further, but at least for the past 2 decades Ms. Hockfield's statement does not hold.

Oh? She never claimed it had been steady for the past 2 decades, or even that it had been steady for 4 decades; she said it was the same now as it was in [1970 or 1980], without any comment on the path of the curve between then and now. So far as I have followed up your links, I see no data contradicting her.

First off, the claim does not square with data which show the non-productive parts of the US economy (the so-called FIRE economy, finance/insurance/real-estate, plus government, healthcare, etc) have grown relentlessly as a fraction not only of employment but also of GDP.

Not square? Where?

Her claim said nothing about any sector other than manufacturing, so data about those other sectors is irrelevant.

Furthermore, her claim was about the US share of global manufacturing output, not about employment, employment percentages, or GDP.

I provide some links further down which indicate US share of global manufacturing output has decreased from 28% to 21% in the past 20 years.

That current figure of 21% is reasonably close to her 23% -- could be just a matter of 2008 or 2009 versus 2010. But 20 years ago was 1990, not 1970 or 1980, so doesn't concern her claim.

The article notes that it is not only manufacturing *employment* which has fallen over the past few decades in the US and UK, but also the manufacturing trade *balance*, which is hard to reconcile with the claim that the US share of global manufacturing has stayed roughly constant over that time period.

Why "hard to reconcile"? Her claim was about total manufacturing output, not employment or trade balance. Output percentage might stay the same even when employment percentage or trade percentage changes.

De-industrialisation and the balance of payments in advanced economies

As far as I see, their "de-industrialisation" refers only to manufacturing employment, not manufacturing output. As for balance of payments, that applies to international trade, not domestic or total production/consumption.

My Comment: This economics blogs has a nice graphic showing manufacturing output by various countries between 1990 and 2008.

... and the blog says:

Originally Posted by investing.curiouscatblog.net

Even with just this data, it is obvious the belief in a decades long steep decline in USA manufacturing is not in evidence.

- - -

Originally Posted by ewmayer

Since 2008, US share of global manufacturing output has continued to slide, Wikipedia cites it at 21% in 2010.

That Wikipedia article says (with my underline):

Originally Posted by Wikipedia

The U.S. produces approximately 21% of the world's manufacturing output, a number which has remained unchanged for the last 40 years.

That may be imprecise wording, which should more correctly claim, "... a number which is the same as it was 40 years ago", without implying an absence of change in the interim.

- - -

Originally Posted by ewmayer

Also, my problem with the economists` apparently worshipping of "productivity" as being good for the economy is that it can (and has) masked a hemorrhaging of relatively high-wage jobs, with an ever-dwindling number of folks doing a fabulous job of producing ever-higher value-add goods, while the ones that get "productivized" out of those jobs face long-term unemployment or new lower-wage jobs as burger flippers and Walmart greeters.

Lets see if I have this straight: You'd prefer that productivity in high-wage sectors NOT increase?

Wasn't it also you who complained about adjustments to the list of items included in the CPI (such as phasing out buggy-whip prices in favor of computer prices)?

Is it just that you don't want things to change unevenly, so that there aren't disruptions in employment percentages, so the good old days can continue?

(I'd like that -- I prefer gradualism in such matters -- but abruptness and disruption happens whether I like it or not.)

[ewmayer]

I found a study with data going back to 1970 from the UK economic policy & statistics office, here is the PDF.

The above document has a year-by-year table of comparative manufacturing value-add data from 1970-2008. The absolute values for the US appear a bit lower in this one than for the other references we've cited, perhaps they use a slightly different methodology. But here is the main chart, showing wide fluctuations but an overall flat trendline from 1970 to the early 2000s, and a big downleg since then. Unless the US has (IMO implausibly) regained a big share from Chin in the past 2 years, this one also indicates a decrease: According to these data, in 1970 US global share of manufacturing output was 28.4%, in 2008 that was down to 17.5%. Again, the trend was far from monotonic:

[ewmayer]

U.N. Food Price Index Jumps in December: [i]
An index of key commodities rose 32 percent in six months, putting prices near the crisis levels that provoked shortages and riots in poor countries two years earlier.[/url]

World food prices rose sharply in late 2010, bringing them close to the crisis levels that provoked shortages and riots in poor countries two years earlier, according to newly released United Nations data.

Prices are expected to remain high this year, prompting concern that the world may be approaching another crisis, although economists cautioned that many factors, like healthy supplies of key grains, could prevent that.

The food price index of the United Nations Food and Agriculture Organization rose 32 percent from June to December, according to the new data. In December the index was slightly higher than it was in June 2008, its previous peak. The index is not adjusted for inflation, however, making it difficult to make an exact comparison.

The index is a measure of commodity prices on the world export market. It was pushed up in 2010 by rising prices for cooking oils, grains, sugar and meat.

“We are at a very high level,” said Abdolreza Abbassian, an economist for the organization, which is based in Rome. “These levels in the previous episode led to problems and riots across the world.”

He said bad weather affecting commodity crops in many exporting countries might help keep prices high over the next several months.

“The concern is that the long duration of the high prices for the months to come may eventually result in these high prices reaching the domestic markets of these poorer countries,” he said. “In the event of that there is the chance of the repeat of the events of 2007 and 2008.”

At that time, high oil prices, growing world demand and poor harvests in some areas combined to push up food prices for poorer importing countries. That led to shortages and sometimes deadly riots in several countries, including Egypt, Haiti and Cameroon.

Mr. Abbassian said, however, that there were several crucial differences. Much of Africa had good harvests last year, easing reliance on imports. Grain prices over all remain significantly below the highs they hit in 2007 and 2008. Export prices for rice are 40 to 50 percent below those highs, he said.

My Comment: Regarding the "the index is not adjusted for inflation" bit: The central bankers who are flooding the capital markets with newly-printed money say they are not concerned about causing inflation because right now deflation is the greater concern. Their printing, coupled with near-zero-interest-rate lending policies, has fueled speculative bubbles in both equities and commodities as everyone and their brother scrambles for yield. (Sound familiar? It should - same dynamic which was at play during the housing bubble, just the price distortions are now in equities+commodities, rather than equities+housing). This has caused the above big-time inflation in food prices, which the article notes "is not inflation adjusted", even though the Masters of the Universe sponsoring it tel;l us "there is no inflation, so we can print away". Why do the MOTU believe (or say) there is no inflation? Why, because their measures of inflation exclude food and commodity prices as being "too volatile". The logic at work here is simply byzantine.

The unnamed "economists" cited in the article are similarly ludicrous - it appears that by their measures, it`s OK if food is becoming unaffordable as long as there is a "healthy supply" of it. And none of them seems to be asking the obvious "If supplies are so plentiful, why are prices rising so fast?" And at the same time, "bad weather affecting commodity crops in many exporting countries" has somehow not hurt supply, but is supposed to help explain the high prices. The whole article deserves a giant "WTF?" sticker.

In other news, today`s ADP payroll-employment report was cheered by the markets, but was also diametrically opposed to the employment component of the ISM Services report which came out a few hours later. The one consistent trend in recent manufacturing and services indices has been the worrisomely rising producer-prices-paid components, which are again indicative of commodities price inflation. Not all of that gets passed on to the consumer - if the producer cannot pass it on due to weak demand, it hammers their profit margin. In many cases, the producers try to pass it on by stealthy means, usually via reduction in package contents. I've seen numerous examples of this recently, for example jars of spaghetti sauce labeled as being "on sale" at Target, where the price is a tad lower than I paid the last time, but the jar magically has shrunk from 28oz to 24oz. ZeroHedge refers to this phenomenon as "Value Deflation":

One Walmart shopper [shared] the following story:

"I noted with interest that the Wal-Mart I shop at had cleared the shelves of "Great Value" brand coffee in 39 oz cans for about 2 weeks. Today the new can appeared, with the following differences:

1.) Can is now 33.9 oz, down from 39 oz. Also conspicuously missing is the conversion of 2lb, 7oz therefore no comparison in pounds is easily made.

2.) Price for this smaller can is up from $9.88 to $10.48, by my rustic math an approximate 20% increase!

3.) Contents of can are no longer 'Premium Columbian' Decaffeinated. Now labeled '100% Classic Decaf'."