If the Global Economy Were an Airplane

South Korea’s exports tumbled to $41 billion in April, marking the 16th consecutive month of declining foreign sales. Last month’s result represented an 11.2% decline from the prior year and an 18% drop from April 2014. Moreover, within that shrinking total, exports to China were down by 18.4% last month, following a 12.2% drop in March.

The Korean export slump is no aberration. The same pattern is evident in the entire East Asia export belt. That’s because the Red Ponzi is in its last innings. Beijing is furiously pumping on the credit accelerator but to no avail.

As can’t be emphasized enough, printing GDP by means of wanton credit expansion does not create wealth or growth; it just results in an eventual day of reckoning when the speculative excesses inherent in central bank money printing collapse in upon themselves.

China is surely close to that kind of implosion. During Q1 total credit, or what Beijing is pleased to call “social financing”, expanded at a $4 trillion annualized rate. This was up 57% over prior year and represented debt growth at a 38% of GDP annual rate.

To wit, between 2011 and 2015 China’s Q1 domestic petroleum fuel use, as measured by shipments of its two giant state oil companies, rose from 271 million tons to 339 million tons or by 5.5% per annum.  By contrast, it is now shrinking, and that is a sign of an unfolding deflation, not a return to boom times in another venue.

There is a reason why CapEx is plunging all over the world, and why Japan is slipping into recession, Europe is sputtering and the US has hit the flat line. Namely, the central bank fueled crack-up boom is doing exactly what Mises foretold; it’s cracking up.

To be sure, modern day economists have no use for such vocabulary, and are want to describe the slumping trade data now emerging daily as evidence that the global economy is lapsing into “stall speed”.

That’s a metaphor from aeronautics, of course, but it means the same thing.

Reprinted with permission from David Stockman’s Contra Corner.

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