MEDIA and YOUR MONEY

Oops, the cat is out of the bag – times 2

This last few days has been surprising as two closely guarded economic ‘secrets’ have been let out of the bag!

EU 

This week the EU’s official statistics agency, Eurostat, reported that the 17 member EU has had two negative quarters with a reduction of 0.1% and now 0.2% - meeting the standard definition of a (new) recession.  However, as Barrie McKenna and Eric Reguly have pointed out in the Globe and Mail business section, November 16, 2012, B1 “In euro zone, the return of recession bites like depression” , the Eurostat’s current and preceding reports have been highly misleading.  If Germany is pulled out of the 17 nation calculations, Europe has been in recession for 5 quarters or 1 1/4 years!!!!

This last FACT has been hidden by the EU and North American media and business reporting until now.  We have heard and seen news on government austerity, higher unemployment among government staff and protests in the streets, but the steady and ongoing decline in the overall economy , the recession/depression element, has been well covered up for over a year!!!!

 

China

Communist states, be they the Soviet Union, North Korea, Cuba or China, lie about their economic growth and success all the time, and as they have absolute media control they get away with it far more than western governments do.

Communist targets for improved production have been exaggerated  from Lenin’s first 5 year plan onward as the Party, to stay in power, must continually promise ‘good news’ to its people; and to proclaim communism’s superiority to the outside world.  

Consequently, I have never trusted China’s official government data even after China embraced a mixed economy with strong capitalist elements.

That is why two recent media items are so important.  Gordon Chang of Forbes.com, while interviewed last week on TVO’s the Agenda regarding China’s changing-of-the-guard leadership convention, mentioned in passing that the recently announced Chinese economic growth of 7%  is really 1% or less- based on electricity use data he has access to. 

The same picture of a struggling Chinese economy on the verge of recession was also presented in a CBC National news report of November 14, 2012.   The segment by Adrienne Arsenault entitled “China’s Chill” is available at CBCnews.ca. While the first half focuses on the centrally planned, ghost city of Ordos in Inner Mongolia, which at least 4 year years after its construction is still devoid of people, let alone the planned 1,000,000 residents (See Google, Ordos ghost city for reports and YouTube videos), the second half is a tour of the Beijing  industrial zone with an economist.  He shows Ms. Arsenault how he tracks China’s real growth: by looking at the supply of coal in storage and its local selling price, and the amount and condition of steel pipes and beams at a local factory.  In both cases, the news is bad:  the price of coal has dropped (due to less demand) and manufactured pipes and beams sit untouched and turning to rust.  

 So, those in the know, who do not rely on self-serving Chinese government numbers and who look to independent sources for economic evidence – such as electricity use, coal costs and factory surplus goods, find China is close to or already in negative growth – i.e., recession.

China depends on world demand -  Europe and North America in particular – to buy most of its factory output, and it is in trouble as the western world cannot afford to buy as of old.

And Canada, which has been relying more and more on China to buy its raw resources – from lumber to coal to copper to oil – should also take note and expect Chinese purchases to drop.  According to Ms. Arsenault, it could mean a whopping hit to Canada’s resource based economy!