Monday, March 30, 2009

World Trade Disorganization

World Trade Is In Freefall with No Bottom In Sight

The CPB of Netherlands is out with a report on world trade that is downright frightening
CPB World Trade Report

World Trade Volume has collapsed at a 40% annual rate in the last 3 months. Now mind you that the total collapse of trade during the 30's was 66% peak to through(source: US Dept of State, I do not know if this data is for volume or is the dollar figure, is likely to be an amount not adjusted for the deflation of the time, that is the dollar volume), the current dollar volume collapse in world trade is at 20%(the collapse is running at roughly 41% annual rate), so in just a few months world trade has collapsed almost a third of what it took 29-34 to build it. We do not have Smoot-Hawley but we do have Citibank, credit is more important to the functioning of world trade these days therefore its having a similar impact, whether goods and services don’t cross borders because of politicians or troubled banks the economic effects will be the same, lower living standards and economic depressions.
That said protectionism is going on without much trouble as the world bank is reporting most of the G-20 countries had no trouble signing more tariffs and barriers after claiming free trade was good, and this is a on going politician reaction that will not stop anytime soon

Back in January I suggested world trade was in for a hard landing because human nature had not changed and the temptations didnt either, so far they way its going it will end up as a total crash with no survivors.
However at some point some kind of stabilization is likely to occur as the 'low hanging fruit' is shutout of trade but the main important products are not likely to be going nowhere(oil-energy products, food products as no politician wants riots, some medicines)so that annual rate will almost certainly slow down and further declines will be harder to generate.

The credit component however is still worrisome. If the US has policymakers who are slightly more knowledgeable than others in dodging depressions and STILL were not able to stabilize their banks and credit what does that say about dozens of other leaders around the world being able to create their soft landings? It says my statement that the "world fate is in the hand of morons" is likely to play out and things are in for a rough time, governments are not likely to prevent it as they don’t seem competent enough

My government skepticism has led me to keep a Short Assets bias through 2009, even though I kept hearing market savvy folks like the ones from Pimco assuring that the government was going to save the day(While at the same time refusing to take risks). Its likely that they wont, these problems are big and difficult to solve and efforts like 0% rates, credit facilities, stimulus plans, etc can HELP but they don’t seem enough, furthermore those efforts need to be applied in a global scale and when you see the protectionism getting out of hand and the slow response/success in stabilizing banks you know what they take out the benefits of some policies they are creating, so it could be a wash in the end

I’m not suggesting a Great Depression is likely, there is simply no deflationary gold standard to lock central banks into watching deflation to take hold. CBs are globally printing money(this intervention they are getting it right as it doesnt take a genius to fire up a printing press), even Trichet has complained his way into almost 0% rates but I do suggest depressions could became more widespread. It wont hit just Iceland and a few other names, it could hit a good chunk of the developed world and this is all very frightening

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