Financial Armageddon

Different...Again?

According to USA Today's most recent economic outlook survey, "Economists See Growth Slowing, Recession Risk Falling," the majority of experts are cautiously optimistic:

• The risk of another U.S. recession is falling. The median estimate of USA TODAY's panel call it only a 22% probability in the next 12 months.
• Europe's financial crisis will shave only a quarter of a percentage point from this year's U.S. growth, the economists said.
• More than 90% of the economists think home prices have either already bottomed out or will by the end of this year.

And yet, as John Hussman notes in this week's Hussman Funds' Weekly Market Comment, "Warning: Goat Rodeo," the hard data paints a much less sanguine picture of the risks ahead.

While we typically discourage drawing inferences from any single indicator, it's at least worth noting that with the release of Q4 GDP figures, the year-over-year growth rate of real U.S. GDP remains below 1.6% (denoted by the red line below). A decline in GDP growth to this level has always been associated with recession, usually coincident with that decline, though with a two-quarter lag in two instances (1956 and 2007), and with one post-recession dip in growth during the first quarter of 2003. As it happens, the GDP growth rate dropped below 1.6% in the third quarter of 2011.

Given the strong and rather obvious relationship between the most recent year-over-year rate of GDP growth and the prospect of oncoming recession, it's difficult to understand why Wall Street so completely rejects the likelihood of an economic downturn.

Because this time it's different?

LOL!!

Funny Stuff

Amid all the acronyms and jargon, propagandizing and lying, and delusional groupthink, it can difficult for most people (including me) to get a handle on events across the pond . However, one blogger has managed to clarify matters in hilarious fashion. In "The Laws of Economics for the Drinker and Banks," reszatonline brings us the definitive guide to what went wrong in Europe.

Helga is the proprietor of a bar.

She realizes that virtually all of her customers are unemployed alcoholics
and, as such, can no longer afford to patronize her bar.

To solve this problem, she comes up with a new marketing plan that allows
her customers to drink now, but pay later.

Helga keeps track of the drinks consumed on a ledger (thereby granting the
customers’ loans).

Word gets around about Helga’s “drink now, pay later” marketing strategy
and, as a result, increasing numbers of customers flood into Helga’s bar.

Soon she has the largest sales volume for any bar in town.

By providing her customers freedom from immediate payment demands, Helga
gets no resistance when, at regular intervals, she substantially increases
her prices for wine and beer, the most consumed beverages. Consequently, Helga’s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these
customer debts constitute valuable future assets and increases Helga’s
borrowing limit.

He sees no reason for any undue concern, since

he has the debts of the unemployed alcoholics as collateral!!!

Of course, you know how it ends (if not, click here to read the rest).

(Via Capitalogix with a hat tip to Andy.)

P.S. I try not to be too political at Financial Armageddon -- mainly because I believe both sides have done an equally good job wrecking the American Dream -- but this cartoon (again, via Capitalogix) was just too funny to pass up:

Already There?

Five more reasons why America is on the road to Banana Republicville (or are we already there?):

1. Those in charge don't feel constrained by the rules that apply to everyone else

"36 Obama Aides Owe $833,000 in Back Taxes" (Investors Business Daily)

How embarrassing this must be for President Obama, whose major speech theme so far this campaign season has been that every single American, no matter how rich, should pay their "fair share" of taxes.

Because how unfair -- indeed, un-American -- it is for an office worker like, say, Warren Buffet's secretary to dutifully pay her taxes, while some well-to-do people with better educations and higher incomes end up paying a much smaller tax rate.

Or, worse, skipping their taxes altogether.

A new report just out from the Internal Revenue Service reveals that 36 of President Obama's executive office staff owe the country $833,970 in back taxes. These people working for Mr. Fair Share apparently haven't paid any share, let alone their fair share.

Previous reports have shown how well-paid Obama's White House staff is, with 457 aides pulling down more than $37 million last year. That's up seven workers and nearly $4 million from the Bush administration's last year.

Nearly one-third of Obama's aides make more than $100,000 with 21 being paid the top White House salary of $172,200, each.

2. Those in charge increasingly censor and harass the media

"U.S Falls to 47th in Press Freedom Rankings after Occupy Crackdown" (Daily Mail)

Sweeping protests around the world made it an extremely difficult year for the media, and tested journalists as never before, the annual report into press freedom reveals.

The annual report by Reporters Without Borders has been released, showing the United States fell 27 points on the list due to the many arrests of journalists covering Occupy Wall Street protests.

The slide in the United States places it just behind Comoros and Taiwan in a group with Argentina and Romania.

3. Those in charge feel free to use public funds for private gain

"Parent Of Government-Backed Battery Maker Goes Bankrupt" (Associated Press)

The parent company of an electric car battery maker that received a $118 million grant from the Obama administration filed for Chapter 11 bankruptcy protection on Thursday.

New York-based Ener1 said it has been affected by competition from China and other countries.

Ener1 subsidiary EnerDel received a $118 million stimulus grant from the Energy Department in 2009, and Vice President Joe Biden visited the company's new battery plant in Indiana last year.

Ener1 is the third company to seek bankruptcy protection after receiving assistance from the Energy Department under the economic stimulus law. California solar panel maker Solyndra Inc. and Beacon Power, a Massachusetts energy-storage firm, declared bankruptcy last year. Solyndra received a $528 million federal loan, while Beacon Power got a $43 million loan guarantee.

4. Those in charge favor policies that benefit the few at the expense of the many

"How to Elude the Fed's Attack on Savers" (MarketWatch)

On the surface, the Fed's decision to keep rates at 300-year lows was spun as an effort to help the U.S. stay in its slow grind higher. But from a personal-finance standpoint, it is one of the most outrageous ripoffs of all time -- a massive theft from the savers and retirees of this country for the benefit of banks and big business.

You might think of Fed chief Ben Bernanke as a reverse Robin Hood -- stealing the savings from the older people who built this country into the powerhouse that it is today and giving it to enterprises that absolutely, positively do not need interest rates near zero to make their businesses work. And if they do, they don't deserve help anyway.

If you have money in a passbook savings account or certificate of deposit, or in Treasurys, as so many retirees do, then the Fed's decision Wednesday ensures that for the next two years, banks and the federal government will pay you less than 1%, which is in turn eroded by inflation, leaving you with -1%. You are thus essentially paying the banks to take your money, which they then pay to themselves as bonuses and lend primarily to the most creditworthy of their cronies, not to the small businesses that actually could use a hand.

Even worse, a lot of the savings that you are lending the banks and government for pennies under the zero interest rate policy, or ZIRP, is being shipped to Europe in the form of "swaps" and other arcane instruments they don't want you to understand to help bail out holders of Greek, Portuguese, Italian and Spanish debt.

5. Those in charge seek to keep greater tabs on what the masses are doing

"Drones: Another Tool of the Surveillance State" (The New American)

Evidence that New York City is considering using drones to keep an eye on its citizens is growing, according to Don Dahler of New York’s CBS Channel 2. Dahler quoted an email it obtained indicating that a detective in the New York Police Department’s counterterrorism division asked the Federal Aviation Administration “about the use of unmanned aerial vehicles [UAVs] as a law enforcement tool.”

Dahler noted that NYPD commissioner Joe Kelly suggested that drones would be useful: “In an extreme situation, you would [then] have some means to take down a plane.” A spokesman for the NYPD admitted that “We’re always looking at technology. Drones aren’t that exotic anymore. Brookstone sells them. We’ve looked at them but haven’t tested or deployed any [yet].”

A retired officer from the department said that the use of drones would help protect the police from physical danger: “Not only would it be a form of surveillance gathering to protect the public, it also in many respects removes the officers … from harm’s way.”

...

Drones are increasingly being used for citizen surveillance. Retired General Michael Kostelnik heads up the office that supervises the use of drones and said drones are routinely being used across the country. Predators are flown “in many areas around the country, not only for federal operators, but also for state and local law enforcement and emergency responders in times of crisis.”

Stay tuned for the next installment -- coming soon.

Wrong Again?

According to one global manufacturing powerhouse, the outlook for 2012 is pretty rosey.

"There Won't Be a Global Recession, Caterpillar Says" (TheStreet)

Don't worry about a global recession. Caterpillar says it won't happen in 2012.

In an eventful week in which Apple surprised the world with outsized profit and sales gains, and the Federal Reserve said it would keep interest rates low for at least another three years, Caterpillar's results sneaked up on investors. The construction-equipment maker blew past earnings and revenue targets with its fourth-quarter results, raising its outlook for 2012 in the process.

"I'm surprised as well," says Oliver Pursche, president of Gary Goldberg Financial Services. Pursche manages the GMG Defensive Beta Fund, which counts Caterpillar as a top holding. "It's a positive surprise. We added to the position when it pulled back in the fall, but I don't think anyone can say they believed this would happen."

The best news in Caterpillar's report was the global company telling investors not to worry about another global recession, despite enduring questions over Europe's debt crisis and its effect on global growth in 2012.

"The eurozone public debt crisis has been a lingering negative, but it is unlikely to trigger a worldwide recession," Caterpillar said in its release Thursday. The company says the risk of a global recession has "diminished significantly" over the most recent quarter, although Caterpillar noted concern that central banks could slow economic growth if they raise interest rates prematurely.

Caterpillar enjoyed an improvement in sales volume in all geographic regions in nearly all of its business segments, driven by end-user demand.

"Any which way you slice it, the reality is that even if you have some softness in the economy this year and there is a slack in demand, the rate of which the world is growing, the infrastructure theme is more than alive and well in the long-run," Pursche says.

Unfortunately, you can't assume that the company knows what it is talking about. Here is what they had to say following the release of their quarterly results exactly four years ago:

"Caterpillar Affirms 2008 Outlook" (USA Today)

Construction-equipment maker and economic bellwether Caterpillar Inc. said Friday that it expects resilient overseas economies to drive strong sales and profit growth this year, even as the United States teeters toward recession.

...

Caterpillar Chief Executive Officer Jim Owens said strong economic growth outside the United States would offset weak domestic demand.

"Global markets for mining, energy and infrastructure development are booming," he said in a statement.

Caterpillar expects U.S. economic growth to slow to 1 percent this year, including continued weakness in home construction.

The company is predicting profits will grow by 5 percent to 15 percent in 2008, and sees revenue rising 5 percent to 10 percent year-over-year. The prediction implies 2008 profit of $5.64 to $6.18 per share on revenue of $44.06 billion to $46.16 billion.

"While we expect anemic growth in the U.S. economy, we continue to see positive conditions for our sales in most of the rest of the world," Owens said.

Of course, we know what happened after that. We saw the worst global economic downturn since the Great Depression (and Caterpillar's share price didn't fare particularly well, either).

Remember, even those who are at the economy's front lines don't always see the forest for the trees.

Another Day of Surreality on Wall Street

OK, let's try and put this into terms that a fifth-grader (or even a Wall Street MBA) might understand.

1. If the economy is recovering -- or even close to doing so -- why is the Federal Reserve maintaining that short-term interest rates will remain "exceptionally low" until late-2014 -- that is, below the levels that prevailed at the beginning (or even the middle) of every single recovery in the post-war era, as well as below their multi-decade median of five percent?
   
   
2. Why are investors piling into stocks and growing increasingly bullish at a time when the Fed has essentially confirmed that their optimistic assumptions about the economy are not in synch with reality?
3. If, as Federal Reserve Chairman Bernanke says, there is still "enormous" negative equity in U.S. housing and, as U.S. Treasury Secretary Geithner says, "housing finance is still a mess," why did homebuilding stocks today rally more than twice as much as the overall market, and why have they gained nearly 90 percent since October?
4. And finally, if one assumes that today's developments will somehow help the economy to get back on its feet (an extremely dubious assumption in light of the experience of the past several years), why did stocks and bonds (with yields already approaching multi-year lows) end higher on the session?

Another day of surreality on Wall Street.

(The good news about today's announcement, of course, is that it should do wonders for sales of my new gag book, Modern Central Banking: Simplified).

Difference of Opinion

Looks like some of the powers-that-be have not had their regular rations of economic Kool-Aid:

"Global Bosses Are Gloomy About the Economic Future" (BBC News)

Companies around the world are getting gloomier about the economic future again, according to an annual survey of global chief executives.

Nearly half of bosses interviewed by accounting firm PricewaterhouseCoopers are forecasting that the global economy will decline this year.

The number of business leaders that are "very confident" their firms will grow has also fallen, from 48% to 40%.

...

The confidence of chief executives "is decidedly down as they deal with the aftershocks to the recession," said Dennis Nally, chairman of PwC International. "The optimism that had been building cautiously since 2008 has begun to recede."

"IMF Cuts Growth Forecast; Sees Recession" (Bloomberg)

The International Monetary Fund cut its forecast for global growth and warned that the European debt crisis threatens to derail the world economy.

“The epicenter of the danger is Europe but the rest of the world is increasingly affected,” Olivier Blanchard, the fund’s chief economist, said today at a news conference in Washington. “There’s an even greater danger, namely that the European crisis intensifies. In this case the world could be plunged into another recession.”

The fund, in an update of its World Economic Outlook report, lowered its estimate for global growth this year to 3.3 percent from a September forecast of 4 percent. The expansion next year will be 3.9 percent, down from 4.5 percent. The euro area may enter a “mild recession” in 2012 as it shrinks 0.5 percent. The U.S. outlook was unchanged at 1.8 percent growth.

Or perhaps they've simply started paying attention to Financial Armageddon?

Still, there are those who see things differently, including the so-called smart money:

"Goldman’s O’Neill Sees Investors Adopting His Bullish US Stance" (CNBC)

Goldman Sachs’ Jim O’Neill, famous for coining the term ‘BRIC’ to describe the major emerging markets, is bullish on the U.S. economy and, perhaps more importantly, senses more of his colleagues shifting their mood to his more positive tone.

“I spent most of this past week in New York, and to my slight surprise, there appears to be some shift in the mood about the state of life,” wrote O’Neill in his ‘Viewpoints’ letter to clients. “Whether this is because it is the start of the year, asset prices have been perkier or there is some recognition that the U.S. economy and other parts of the world are not as bleak as the second half of 2010 is not so clear. It was certainly quite nice to hear and, in my judgement, is more reflective of what is going on.”

Hmmm, I wonder who's right?

A Tad Unsettled

Suddenly, global credit markets are looking, shall we say, a tad unsettled...

I wonder if we're (finally) beginning to see bond markets pricing in the post-financial-crisis orgy of fiscal recklessness (not to mention the tsunami of refinancing-related supply)?

If so, that's not going to be very good for the public finances of countries that decided high debt levels don't really matter, is it?

Oops.

My Latest Book

With three serious books under my belt, I thought it was time for something a little different...

Modern Central Banking: Simplified is the perfect gag gift for that special gold bug (or non-economic-Kool-Aid-drinking realist) in your life. Two hundred pages of what Federal Reserve Chairman Ben Bernanke and his fellow central bankers do best.

Of course, this book is strictly for laughs (the joke is on us?).

Available now at CreateSpace, and at Amazon (and other book retailers) in the days to come.

Yet Another Reality Check

"A picture is worth a thousand words."

If you're as befuddled as I am as to what the bulls are looking at, here's an ugly 3,000-word reality check.

Economy

(Source: Zero Hedge)

Government

Stock Market

(Source: Market Anthropology)

Feel free to pass these along to any of the delusionals you might know (not that it will matter, of course).

Public Service Announcement

For those individuals who prefer the kinds of "insights" that mainstream "experts" typically dole out, here's a cheaper and more reliable source of assistance: the Random Financial Advice Generator (click image to see more):

(Hat tip to The Big Picture.)

Alternatively, you can simply click on the following (via YouTube):

No Solution

In "On Borrowed Time," Barron's columnist Randall Forsyth further undermines the notion that persistent public profligacy can solve our problems:

Heavy debt loads slow the U.S. economy now and pose threat to the future.

Can a stimulant become a depressant? As with alcohol, government borrowing and spending initially can give a boost, but later becomes a drag. America has hit the downside of that progression.

So says Lacy H. Hunt, chief economist of Hoisington Investment Management (whose eponymous head, Van R. Hoisington, recently was interviewed in the print edition of Barron's.) The deficits that had aimed to stave off a rerun of the Great Depression after the 2008 financial crisis now are having a depressing effect on the U.S. economy, Hunt contends.

Many mainstream "analysts" would argue otherwise. In their view, even though the economy has yet to recover in any meaningful sense of the word, it's only a matter of time before the torrent of debt-financed pump-priming yields the intended results. Moreover, some would undoubtedly claim that the twitches of activity we've seen in the auto sector, for example, and in other areas of the economy are a sign that Keynesianism is working. Unfortunately, those views don't quite square with reality. In fact, writes Forsyth,

the opposite is happening. The multiplier from government spending is no better than zero, Hunt says on the basis of econometric evidence. If the economy is "shocked" with a deficit, gross domestic product will get a lift for three-to-five quarters. After 12 quarters, however, the original stimulus is spent, literally and figuratively. But the debt that was incurred to finance the spending remains, and has to be repaid, with interest. That requires a shift of assets from the private sector to the public sector.

Japan provides an example of this process. That nation's government debt has expanded during its "lost decades" to 200% of GDP from 50%. Meanwhile, nominal GDP in yen terms is basically unchanged. In other words, Japan's debt has quadrupled but has nothing to show for it -- except higher interest costs, which has to come out of the private sector.

Hunt cites the now-familiar conclusion that debt-to-GDP ratios over 90% retard growth from economists Kenneth Rogoff and Carmen Reinhart, authors of the popular This Time is Different: Eight Centuries of Financial Folly, who also presented that conclusion in a 2010 National Bureau of Economic Research working paper, Growth in the Time of Debt.

Hunt also points to an even more exhaustive study on the effects of debt from Stephen G. Cecchetti, M. S Mohanty and Fabrizio Zampolli from the Bank for International Settlements, presented at the Federal Reserve's Jackson Hole confab last year, The Real Effects of Debt , which takes into account the retarding effect of not only government but also corporate and household debt. Those imply "that the debt problems facing advanced economies are even worse than we thought," especially when unfunded future liabilities in the form of promises given by governments in retirement and medical benefits are counted.

Of course, if ivory-tower instilled dogma suggests something different, it's OK to ignore reality -- right?

A Normal Mirage

(Image: source)

In "Not Flush," I suggested that "Americans had relied on what little cash they had left -- or didn't really have -- to buy what they wanted (needed?) in the run-up to the holidays."

Eight days later, we have a report out from Reuters, "US Recovery at Risk as Americans Raid Savings, Borrow Again," lending further weight to the notion that the so-called return of the consumer is only a mirage.

More than four years after the United States fell into recession, many Americans have resorted to raiding their savings to get them through the stop-start economic recovery.

In an ominous sign for America's economic growth prospects, workers are paring back contributions to college funds and growing numbers are borrowing from their retirement accounts.

Some policymakers worry that a recent spike in credit card usage could mean that people, many of whom are struggling on incomes that have lagged inflation, are taking out new debt just to meet the costs of day-to-day living.

American households "have been spending recently in a way that did not seem in line with income growth. So somehow they've been doing that through perhaps additional credit card usage," Chicago Federal Reserve President Charles Evans said on Friday.

"If they saw future income and employment increasing strongly then that would be reasonable. But I don't see that. So I've been puzzled by this," he said.

After a few years of relative frugality, the amount of money that Americans are saving has fallen back to its lowest level since December 2007 when the recession began. The personal saving rate dipped in November to 3.5 percent, down from 5.1 percent a year earlier, according to the U.S. Commerce Department.

Jeff Fielkow, an executive vice president at a recycling company in Milwaukee, Wisconsin, contributed less to retirement savings and significantly cut back on dining in restaurants and taking vacations in order to keep college savings on track for his two children. "We would love to save more," he said, "but we're doing the best we can."

Aside from that , it's hard to even comprehend how things could be seen as returning to "normal" in an economy where, as Real Time Economics writes, nearly half of the U.S lives in a household receiving government benefits:

The pool of Americans relying on government benefits rose to record highs last year as an increasing share of families tapped aid in a weak economy.

Some 48.6% of the population lived in a household receiving some type of government benefit in the second quarter of 2010, up a notch from 48.5% in the first quarter, according to Census data.

Expanding government programs combined with the worst downturn since the Great Depression have led to an explosion in the share of Americans relying on outside help. To combat prolonged economic weakness, Congress extended unemployment benefits to a record 99 weeks (up from the normal 26-weeks offered in most states). The food stamp program was tweaked so it was more generous. Americans flocked to Social Security disability, a last bastion of support for some of the long-term unemployed.

Sometimes I really do feel like I'm living in an alternative reality.

Wall Street Math

An article in Canada's Financial Post, "View of U.S. Markets As Isolated From the World ‘Dangerous and Misguided,’" serves as a good primer on Wall Street's cognitively disconnected math:

Combine deteriorating conditions overseas --

The chief market strategist at U.S. Trust Bank of America Private Wealth Management warned against concluding that the relative outperformance of U.S. stocks last year and recent string of strong U.S. economic data mean the country’s equity markets are “decoupling” from the rest of the world.
 
The U.S. economy may be in decent shape — with strong manufacturing and record exports of more than US$2-trillion in 2011 — but the country is not isolated from what happens in Europe or the rest of the world, Mr. Quinlan said in a note to clients Friday.

“In our view, the ‘decoupling’ chatter is dangerous and misguided, since there are plenty of problems and challenges brewing overseas that will be directly or indirectly channeled back into U.S. financial markets,” he said. --

with direct threats to bottom-line profitability --

With half of U.S. foreign affiliate sales coming from Europe, Mr. Quinlan said the ongoing crisis in the region remains a “potential source of earnings disappointment for a number of U.S. firms.” --

heightened geopolitical risks --

Tensions between the United States and Iran and continuing social instability in the Middle East are also a concern, he said.

“We think of it as an ‘arc of instability,’ or a geographic cauldron that could unexpectedly and swiftly rattle the global oil markets and undermine global economic growth.” --

and major global structural imbalances --

Finally, growth in emerging market nations may be a bright spot, but the focus on exports in those countries is “depriving the world economy of badly needed global demand,” he said. --

and what do you get?

Ultimately, Mr. Quinlan said, the economic trends look positive for the United States and the country’s stocks are likely to outperform again this year (he estimates the S&P 500 will end the year in the 1,300 to 1,350 range, up from its current 1,290).

Huh?

In Good Company

In a 16-slide gallery feature, "Apocalypse How? Dire 2012 Forecasts," Bloomberg highlights the perspectives of those with a penchant for telling it like it is.

Pessimistic Prognosticators

Only the gloomiest of Wall Street's prognosticators got it right in 2008 and 2009. Since then, their pessimism has been infectious. On almost any investing topic -- from emerging markets to U.S. stocks, from commodities to sovereign debt -- there are respected experts predicting the worst.

So far, apocalypse hasn't arrived. The U.S. economy shows signs of life. Europe is muddling through its debt concerns. The economies of China and India have slowed but not stalled.

If these commentators, who range from short-seller Jim Chanos to GMO's Jeremy Grantham, prove prescient -- and Bloomberg.com will check in later this year to see if they are -- the biggest surprise in 2012 would be some truly good news.

Of course, I was flattered (and surprised) to find my views featured alongside those of a number of individuals I admire and respect.

Michael Panzner wrote the book "Financial Armageddon" in 2007 and an equally gloomy tome in 2009: "When Giants Fall: An Economic Roadmap for the End of the American Era." On his blog, Panzner describes "an economy teetering on the edge of disaster," and criticizes those betting on recovery. "It appears somebody put too much Kool-Aid in the optimists' eggnog," he wrote Dec. 28. In a Jan. 11 email, he said: "The fundamental outlook is even worse now than it was a few weeks ago, given (the lack of positive) developments in Europe and growing evidence that the economies of major countries around the world are deteriorating fast."

As a long-time student of the markets, I'm naturally wary when articles like this appear in the mainstream media, as they can be a sign that sentiment has reached a bullish or bearish extreme (and thus is about to be proved totally wrong). However, given that the stock market is not far from its post-crash-rebound highs, while CEOs. investors, strategists, economists, and newsletter writers are generally optimistic about the outlook, I don't think I have too much to worry about.

Bad News, Good News?

In "Are Americans Getting Healthier?" the Wall Street Journal's Real Time Economics blog notes an interesting turn of events:

Americans might be getting healthier, a development that — if true — could have economic causes and consequences.

Obesity may be on the decline.The percentage of Americans who are obese declined from 2010 to 2011, according to a Gallup report released this week. In every quarter of the past year, there were fewer obese Americans than in the same period of 2010, the polling firm said. All told, 26.1% of American adults were obese in 2011, compared with 26.6% in 2010.

The year-over-year decrease is “statistically significant,” said Gallup’s Elizabeth Mendes, calling the trend “a really positive sign.” She said Gallup is studying the quarterly survey data and hasn’t yet drawn any conclusions about why obesity may have waned in the past year. (In 2009, 26.5% of American adults were obese.)

Some have theories, however.

According to Jennifer Robinson, a professor in epidemiology and medicine at the University of Iowa‘s College of Public Health, “economics is driving this.” Dr. Robinson, who has studied weight in the U.S. over the past 50 years, said obesity rates were flat until about the mid-1970s. While the obesity rate among lower-income individuals was always greater than for higher earners, rates across the entire income spectrum rose between the 1970s and 2001, she said, with obesity “skyrocketing” among the top quartile of earners.

Dr. Robinson, who based her research on data collected by the Centers for Disease Control and Prevention’s National Health and Nutrition Examination Survey, pegs economics as the reason behind the increase among higher earners. A number of factors came into play, she said: longer commuting times, more sedentary lives, larger portion sizes in restaurants and the coffee-shop phenomenon of indulging in “1,000-calorie grande lattes and that kind of thing.”

Of course, circumstances have changed quite a bit since the bubble burst, and current economic conditions may well be be having the opposite effect. In fact, according to Dr. Robinson,

the recession and the slow recovery is “especially affecting...blue-collar male workers,” she said, “and I think a lot of discretionary food expenditures are declining.”

With that in mind, perhaps the following report should be taken as exceptionally good news?

"Further Rise in Poverty Seen with Slow Recovery" (Reuters)

Nearly 10 million more Americans have fallen into poverty since the 2007-2009 U.S. recession began, and the number is expected to increase due to the slow pace of the economic recovery, a study released on Wednesday by Indiana University showed.

Let's Get Real

With all of this going on in the world's other major economies --

China

"China Slowdown Spreading, HSBC Services PMI Shows" (Reuters)

China's services sector cooled in November to its weakest growth in three months, an HSBC purchasing managers' index showed on Monday, the latest data portraying an economy slowing quickly and in need of policy support.

The index fell to 52.5, a sharp decline given that October's reading was 54.1 -- the highest in four months -- though the index remains above the 50 level that separates expansion from contraction in the sector.

Expectations for new business dropped to their lowest level in three months too, but remained firmly above 50.

Japan

"Japan Recovery Paused as Deficit Grows" (Agence France-Presse)

TOKYO — The Bank of Japan said Wednesday the country's economic recovery "has paused" because of the slowing global economy and strong yen, as data revealed a growing trade deficit for the export-dependent nation.

The central bank left its key interest rate unchanged at between zero and 0.1 percent, but despite the crunch, did not offer any more easing.

"The pick-up in Japan's economic activity has paused, mainly due to the effects of a slowdown in overseas economies and of the appreciation of the yen," the central bank said after a two-day policy meeting.

"Improvement in business sentiment has slowed on the whole despite steady improvement in domestic demand-oriented sectors," the bank said in a statement.

It warned the European financial crisis was posing a serious risk to the global outlook.

Germany

"Survey Shows Germany Already in Recession: Report" (MarketWatch)

The German economy is already in recession, Die Welt newspaper reported Monday, citing its survey of 14 bank economists.

The German economy shrank in the final three months of 2011 and the pace of the contraction will gain momentum in the first quarter of 2012, the survey showed. An economy is in recession if real gross domestic product contracts for two successive quarters.

France

"France Is in Recession That Will Last Through March, Insee Says" (Businessweek)

The French economy will shrink this quarter and next, suggesting the nation is in a recession as investment and consumer spending stagnate, national statistics office Insee said.

The euro area’s second-largest economy will shrink 0.2 percent in the fourth quarter and 0.1 percent in the first quarter of 2012, before expanding 0.1 percent in the following three months, Paris-based Insee said yesterday in its quarterly forecast.

Confidence is slumping as businesses cut back on investment and slash jobs in the face of Europe’s deepening sovereign debt crisis. That’s driving up unemployment and prompting households to rein in spending. A shrinking economy may present a challenge to President Nicolas Sarkozy as he prepares for a two-round election in April and May of next year.

Brazil

"Brazil's Economy Slows Amid Global Downturn, 3Q GDP Stalls" (Fox News)

(NewsCore) - RIO DE JANEIRO -- The Brazilian economy no longer appears to be immune from the global downturn, as third-quarter gross domestic product (GDP) came in unchanged from the previous quarter, according to official data released Tuesday.

Brazilian growth also slowed on an annual basis. GDP rose just 2.1 percent from the third quarter in 2010, compared to 3.1 percent year-over-year growth in the second quarter, the Brazilian Institute of Geography and Statistics (IBGE) said.

A survey of economists by Dow Jones Newswires produced a median forecast of 2.7 percent growth for the year.

The country's remarkable boom has slowed precipitously as eurozone debt fears weigh on the export-reliant economy.

Brazil grew by an explosive 7.5 percent in 2010, the IBGE said. But prolonged debt problems in developed markets struck a blow to Latin America's growth engine.

As a result, economists have slashed their forecasts for Brazilian growth in 2011 and next year.

United Kingdom

"UK Economy Likely to Shrink Amid Euro Crisis, Says BCC" (The Telegraph)

The Government must act now to repair the blow to business confidence dealt by the eurozone debt crisis, or risk an even greater setback for Britain's ailing economy, the British Chambers of Commerce warned.

The BCC said in its latest quarterly survey that although a technical recession with two successive quarters of negative growth was "not a foregone conclusion", at least one quarter of contraction was very likely in the first half of 2012.

"Britain's economy is at a critical stage – and now is not the time to shy away from the radical decisions needed to inspire confidence and increased investment for years to come," said John Longworth, the BCC's director general.

The business group said its latest findings showed the economic recovery was stalling, with broad-based weakness in the fourth quarter of 2011 across the UK manufacturing and services sectors.

"The results of our latest survey are a cause for concern and point towards stagnation in the first quarter of this year. Many of the balances are now at levels last seen in the third quarter of 2009, meaning improvements seen in the last two years have largely been cancelled out," said Mr Longworth.

Italy

"Italy Recession Fears As Growth Contracts" (The Telegraph)

Italy's economy contracted by 0.2pc in the third quarter, raising fears that the eurozone's third largest country is slipping into recession.

The weaker-than-expected data as adds to the woes of Prime Minister Mario Monti's technocrat government, which has to drive through a €34bn austerity package and crucial structural reforms that will stunt growth further.

Consumer spending dropped 0.2pc from the second quarter, with investment declining 0.6pc. Exports grew 1.6pc and imports fell 1.1pc in the quarter.

The Italian government predicts GDP will contract 0.4pc next year, but many economists fear the figure is optimistic.

"We can say without mincing words that we have already slipped into recession," said Intesa Sanpaolo analyst Paolo Mameli. "We expect GDP to keep contracting for the next 3-4 quarters. --

Is there any chance that our economy will not be seriously affected?

I thought we put paid to the ridiculous notion of "decoupling" years ago.

Contrary to Popular Wisdom?

One way of measuring inflation is to gauge how prices for an assortment of goods and services have varied over time. Another approach involves looking at changes in how much things cost relative to what the average worker earns (the flaw with this latter method, of course, is that those who don't have jobs may find that many, if not most, of the things they might want or need to buy are unaffordable).

Be that as it may, if one assumes that data from the Bureau of Labor Statistics is even remotely close to the mark, it would appear that the purchasing power of the average worker has improved over the past 10 years, which is contrary to popular wisdom (see dotted line in the chart below).

There could be any number of reasons why perceptions differ from the reported data. Among other things, the composition of the basket of goods that the BLS uses to construct its index might not be realistic, especially in today's fast-changing economy. Or maybe the pricing information they rely on doesn't jibe with consumers' experience on the ground. Then again, a cynic might note that authorities have an incentive to underestimate inflation and overestimate wage growth for pollitical gain.

Regardless, I thought it interesting to highlight those categories that have become the least and most affordable for the average worker over the past decade. Not surprisingly, gasoline and other energy-related products are a lot more expensive in relative (and absolute) terms than they used to be, which goes some way towards explaining  the heightened demand for fuel efficient cars and why people are driving fewer miles than they used to. In contrast, it's easy to see why sales of flat screen TVs and other modern gadgets have jumped -- the products are much more affordable than they used to be.

Not Flush

If these charts are any guide, it looks like Americans relied on what little cash they had left -- or didn't really have -- to buy what they wanted (needed?) in the run-up to the holidays.

Not exactly flush, are they?

Empty Plastic

While economists and the mainstream media tried hard to get everyone excited by today's "better-than-expected" employment report (which included an unusually large and likely-to-be-reversed spike in hiring in the "Couriers & Messengers" category), they failed to mention one thing: even if they're are a few more jobs around, that doesn't necessarily mean Americans are going to go out and start buying stuff.

For one thing, they have a lot of other obligations to take care of first.

As Card Hub CEO Odysseas Papadimitrioas seems to make clear in a CNBC Guest Blog post, "Break Out the Budgets, Study Reveals US Consumers Increasingly Overleveraged," U.S. consumers haven't made any real headway when it comes to paring down high debt loads and getting their financial houses in order.

During the third fiscal quarter of 2011, U.S. consumers added $17 billion in new credit card debt, wiping out what remained of a $33 billion first-quarter pay down and putting us on pace for a $64 billion net gain in credit card debt during 2011, according to a Card Hub study.

First-quarter debt pay downs are typical, as the first fiscal quarter of the year is when companies give out yearly salary bonuses, the IRS serves up tax refunds, and we’re still committed to New Year’s Resolutions. But in neither 2009 nor 2010 was a first-quarter pay down consumed entirely by the close of the year’s penultimate quarter. What’s more, according to the aforementioned study, the amount of new credit card debt incurred during Q3 2011 was 58 percent and 154 percent higher than what was added during Q3 2009 and Q3 2010, respectively.

These trends clearly display that overleveraging of unsecured credit cards is getting out of hand. This may not pose an immediate threat, but what happens if the European debt crisis sours and unemployment starts to go back up?

Indeed, a separate report from Reuters, "Holiday Hangover Means Slow 2012 Start for Stores," pretty much confirms that the only thing many people seem to have in their wallets nowadays is overused plastic, along with the receipts for things they can't afford (and the uncomfortably large balances they're carrying on their credit card accounts).

U.S. retailers are facing their biggest post-holiday depression since 2009 as consumers wary about the economic outlook cut back on spending to pay off credit card bills accumulated last month.

"The first and second quarters this year will see a deeper low than last year. Sales in the week after Christmas were so strong that took a bite from January," retail consultant Jan Kniffen told Reuters.

...

As shoppers felt more confident about their finances and shopped more online, credit card usage rose after three years of major cutbacks in credit card use, a study by the America's Research Group showed.

"January post-holiday sales are expected to plunge to some of the lowest levels in years, thanks to a surge in credit card spending over the Christmas season," said America's Research Group Chairman Britt Beemer.

Beemer said credit card usage this year was up around 25 percent over last year.

"Now that those credit card bills are hitting mailboxes," shoppers will cut back in a very significant way relative to January and February of the last few years," Beemer said.

That said, the retailing sector was higher today, so I guess the "smart money" knows something we don't.

Or do they?

Taking Note

Among those I thanked in my last post of 2011 were the individuals who were kind enough to send traffic my way. In light of the support they have given me, I thought it only reasonable to try and return the favor. Here is a list of those websites (virtually all of which I read on a regular basis) which accounted for the largest number of referrals to Financial Armageddon over the past 12 months (in alphabetical order):

1. Activist Post
2. The Automatic Earth
3. Bearish News
4. The Big Picture
5. Calculated Risk
6. The Coming Depression
7. The Daily Capitalist
8. The Daily Crux
9. DollarCollapse.com
10. Dr. Housing Bubble
11. The Economic Collapse
12. The Exiled
13. FT Alphaville
14. Jesse's Café Américain
15. Monty Pelerin's World
16. Naked Capitalism
17. Of Two Minds
18. Rense.com
19. Some Assembly Required
20. SurvivalBlog.com

Feel free to check them out (assuming you haven't already done so).