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Are we in an economic recession? Prophecy and fulfillment April 26, 2008

Posted by Daniel Downs in economics, news, political economy.
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As promised in my short version of the same title posted on 10 February, the long version is primarily focused on the current global recession. As you will see, the global recession may have been initiated by economic jihad rather by the housing market. A long lax of enforcing standards that were supposed to regulate sub-prime mortgage-backed credit may seem an obvious trigger of the current recession, but the actual cause may in fact be the financial impact of sharply rising oil costs largely controlled by OPEC’s Islamic nations. Whether the economic jihadists are acting as lone-rangers in a struggle against Pax Americana or whether they are seeking to help global elites achieve their one world goals is difficult to say with certainty. If they are, the parody is one of a good-guy bad-guy scenario. The reader must decide for him or herself.

Prophecy and fulfillment

In a 2006 Power and Interest News Report (PINR), Jephraim Gundzik predicted a global economic recession initiated by Middle East conflict. It was predicted that rising oil prices triggered by decreases in exports would result in a worldwide recession. The United States imports about 60% of its crude oil from OPEC nations, which are predominately Muslim. The average cost of crude oil was $27 per barrel in 2000, and the first quarter average for 2008 is $91. Today, crude oil peaked at $118 per barrel. Based on average costs, the difference represents a 42% annual increase in crude oil prices and an annual increase of 29% at the pump. The average cost of gas was $1.56 in 2000 and today it is $3.51, according to the U.S Department of Energy.

According to John Mauldin of Millennium Wave Advisors, nine out of the last ten recessions have been associated with rising oil prices. Like many others, Mauldin believes the rising costs are demand driven. However, world oil production was less in 2007 than in both 2006 and 2005. In fact, 2007 crude oil output was a around 500,000 barrels per day less than in 2005. This was also reflected in OPEC nation production.

Could the current recession be a result of Osama bin Laden’s call for jihad against America? One reason was the theft of Arab wealth and oil. As bin Laden wrote in his 2002 Letter to America:

You steal our wealth and oil at paltry prices because of your international influence and military threats. This theft is indeed the biggest theft ever witnessed by mankind in the history of the world.

Allah, the Almighty, legislated the permission and the option to take revenge…. Whoever has stolen our wealth, then we have the right to destroy their economy.

Jerome Corsi reports that OPEC members Venezuelan President Hugo Chavez and Iran President Mahmoud Ahmadinejad have taken up bin Laden’s call for jihad. They are encouraging continued increases in crude oil prices. They are also calling on OPEC to ditch the dollar for the euro. Both Iran and Venezuela have already done so.

In a January interview with Alex Jones, Corsi predicted a long-term recession plus several years of stagflation. He believes the recession is being engineered by American and other elite globalists. Their goal is to create the need for the North American Union (NAU) and the amero dollar. Corsi has been tracking President Bush’s efforts to form the NAU without public input.

Andy Xie Guozhong made a more precise prediction of a global recession. As reported by The Standard, China’s business newspaper in 2006, Xie predicted a global recession would occur in 2008. He predicted optimism in real estate would end when speculators exit the market as the Beijing 2008 Olympic Games draws near. He said a decline in the property market that has supported profits of banking, raw materials, and many other sectors would have a large multiplier effect on the economy. A weak dollar continuing to decline in value and rising US inflation would lead to a global recession.

It would appear Gundzik and Xie were both right. The collapse of the mortgage markets, skyrocketing energy costs, and the sharp devaluation of the dollar are impacting just about every aspect of the American economy. The impacts include transportation, manufacturing, commercial and retail goods, and services. Over time, the ripple effects raise the cost of living and costs of doing business. Of course, one could argue that inflation is part of economic growth. That is true, but so is the negative impact of rising costs on consumer spending that makes up over 70% of GDP. For unless, wages increase more than inflationary CPI the end result is recession.

Doubting Thomases are probably wrong

Some still doubt that a global recession exists or will occur. Among those casting optimistic doubts are Michael Mandel of Business Week and Felix Salmon of PortFolio.com. Both Mandel and Salmon have a difficult time believing a global recession can exist with 3.7 global economic growth predicted by the International Monetary Fund (IMF). I suspect their views reflect disapproval about the negative impression of a globally engineered recession on consumer confidence. After all, consumers confident about their economy tend to make more purchases.

Both Mandel and Salmon are wrong about IMF’s April World Economic Outlook projections. IMF does predict decreasing global real GDP throughout 2008. Salmon is correct in that not every single nation is projected to have two or more quarters of declining GDP. Some of the nations in Africa and Middle East are expected to increase GDP thus maintaining positive GDP growth for their region. All other regions are expected to show negative GDP growth. Therefore, on a global scale, the IMF projects global recession in 2008 and possibly 2009.

IMF cannot guarantee the Middle East and Africa will escape the recession. The currencies of many Middle East nations are tied to the US dollar. Because of its continuing devaluation, the Middle East is also vulnerable to the recession, according to Mary Nicola, economist with Standard Chartered in Dubai and Simon Williams, HSBC economist for the Middle East.

In the latest Prospects for the World Economy, World Bank projects about 0.3% GDP growth for 2008. For 2009, a decline of about 0.6% of GDP is predicted for the Sub-Saharan region. The World Bank estimates GDP growth will be 0.5% in 2008 for the Middle East and Northern African region. In 2009, GDP will decline 0.1 % GDP growth in 2008. Oil exports and rising oil prices is the reason for Africa and Middle Eastern nations will escape the recession. Because Africa’s economy is also affected by the devaluation of the dollar and by decreased exports to the U.S. and other Western nations, the continued weakening of the dollar may drag down local currencies. If the repercussions of the recession are more severe than expected, inflation and lower exports could drag Africa and the Middle East fully into the global recession.

Like a speeding bullet, money velocity shows a global recession

Money velocity is another measure indicative of recession. Mauldin defines money velocity as “the average frequency with which a unit of money is spent.” It is measured by dividing nominal GDP by money supply. An increasing velocity of money normally represents inflation. When money velocity is decreasing, recession is normally occurring. To show that we in fact do live in a global economy, consider the following two historical graphs of money velocity. (To see a larger and more readable images, click on the graphs.)

Both graphs show a similar downward trend since 1997 with a few up-ticks along the way. This not only provides evidences of a globally interdependent economy; it also evidences a long trend of money recession. The first graph, included in Mauldin’s recent article titled The Velocity of Money, was created by Dr. Lacy Hunt of Hoisington Investment Management. The gray lines indicate previous and current recessions and the black line across the graph represents the near future level of decline.

Remember, it was Democrats who occupied the White House in 1997. The trend upward began during the first term of the current Republican president. Sorry, I couldn’t resist political pundit’s temptation.

The second graph created by the financial experts at Nowandfutures.com. It is based on data found at IMF affiliated central banks in the United States, euro regions, Japan and China. I include it to substantiate the fact that we live in a global economy proven by money market behavior of the U.S. and the rest of world.

I think skepticism about IMF’s optimistic projections for the Middle East and Africa is due. There are many other large oil producers in North America, Central and South America, and elsewhere that have not escaped the global recession. It is doubtful the Middle East and Africa will either, but time will tell.

Should we thank Osama bin Laden, globalists like Bush, or both for the global recession? You decide.



1. Felix Salmon - April 26, 2008

I’m sorry, but I’m not wrong, you are. The IMF is projecting world growth in 2008 of +3.7%. And yes, that’s real growth. Nowhere does the IMF “project global recession in 2008” if by recession you mean negative growth. China alone would pretty much make that impossible.

2. Todays Current Events in our Economy » Alert - United States Economy Recession - April 26, 2008

[…] Alert for: United States Economy Recession Are we in an economic recession? Prophecy and fulfillment By Daniel Downs It was predicted that rising oil prices triggered by decreases in exports would […]

3. Investments on The Finance World For News and Information Around The World On Finance » Blog Archive » Are we in an economic recession? Prophecy and fulfillment - April 26, 2008

[…] Are we in an economic recession? Prophecy and fulfillment Lacy Hunt of Hoisington Investment Management. The gray lines indicate previous and current recessions and the black line across the graph represents the near future level of decline. Remember, it was Democrats who occupied the White … […]

4. Annual Credit Report on Credit Speak » Blog Archive » Are we in an economic recession? Prophecy and fulfillment - April 26, 2008

[…] Are we in an economic recession? Prophecy and fulfillment …regulate sub-prime mortgage-backed credit may … In a 2006 Power and Interest News Report (PINR … the difference represents a 42% annual […]

5. hana - April 27, 2008

Anyway, so this is what’s happening: road rage, murders, outrage at costs. I’ll bet the planners didn’t take that into account. They did the cosmetic stuff, and that’s more or less ready. The real stuff, the real change, that you can’t see but can only feel, is currently underway. I’m being opaque at the moment, but the next few posts will illustrate what I mean.

6. Daniel Downs - April 28, 2008

Here is NBER’s definition of a recession: “A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP….” The GDP data reported by the IMF shows a recession for 2008 globally.

7. in2thefray - April 28, 2008

From IMF

* World growth will slow to 3.7 percent in 2008, in wake of financial crisis
* United States, other advanced economies lead slowdown
* Emerging economies are likely to weather storm better, but not insulated

Add that to NBER and it show’s how numbers work for anyone

8. Daniel Downs - April 28, 2008

An addendum in re postpartumed post: I read somewhere that during the Great Depression annual GDP growth was a little over 1%.

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