BDI Collapse Heralds the Next Global Recession

Reading time: 611 words, 2 pages 2 to 3 minutes

The Baltic Dry Index that measures global shipping prices collapsed in July thus heralding the beginning of the next global economic recession. You can see this in the three scary charts below.

The so-called ‘recovery’ from the last Great Recession was merely a technical recovery as most of the global economies are still weak. I can’t read the term “technical recovery” without laughing. Let’s call it what it is; complete bullshit.

Unemployment is still high and governments are out of ammunition to fight this next downturn. Near-zero interest rates mean that rates can’t go any lower thus governments no longer have this powerful tool to boost economies. Central banks’ balance sheets are so overloaded the U.S. Fed is reducing its asset purchases, but they are still at historic levels. And, taxation is maxed out thus depriving governments of all their traditional tools to fight this next recession. In other words, it’ll be much worse than the last one from which we’ve never fully recovered

As a logistics expert – wait, I hate the word ‘expert’ – as a logistics dude with forty years’ experience, I’m in a unique position to understand the importance of the BDI and its collapse. Although money may be the life-blood of commerce; logistics builds, feeds, clothes and moves the world.

I warned about the collapsing BDI last April when the index stood at 1,029. Today it has fallen to 751. To put that into perspective, it reached an all-time high of over 11,000 before the last recession. As I said, the co-called recovery is bogus; nothing more than propaganda to fool us into complacency so our owners can finish looting us before it all falls apart.

I wrote that, “The Baltic Dry does not measure global shipping costs of finished goods on container ships. Instead, it measures shipping costs of raw materials that are the precursors to production like grain, cement, coal, iron, etc. As such it is an accurate barometer of global production and growth.

“That makes it a reliable leading economic indicator. Because it changes before economies change, it predicts the direction and performance of economies. Unlike other leading economic indicators such as employment rates and Consumer Price Index (measures inflation), the BDI is unmarred by government statistical manipulation. And, unlike bonds or the stock markets, the BDI is devoid of speculative content. As I said, it’s one of the world’s most reliable leading economic indicators.”

The chart below is the BDI as of Monday, August 4, 2014 and it charts the BDI since 2002.

BDI 8-04-14 751

The graph below from Zero Hedge shows that the BDI for the month of July is at the worst level since 1986.

Zero Hedge

Zero Hedge

The continuing collapse of the BDI shows that China’s economic growth is now ancient history. So much for China’s ability to pull the world out of this economic malaise. This is reflected in Zero Hedge’s “Consensus World 2014 GDP Growth Estimate” which has also fallen of a cliff as seen in the chart below.

Zero Hedge's

Zero Hedge’s

Fasten your seat belts, folks. If you thought the last recession was bad, you ain’t seen nothin’ yet.

Remember the mantra:

We cannot borrow our way out of debt.

We cannot spend our way to prosperity.

We cannot pretend our way out of trouble.

August 4, 2014

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About gerold

I have a bit of financial experience having invested in stocks in the 1960s & 70s, commodities in the 80s & commercial real estate in the 90s (I sold in 2005.) I'm back in stocks. I am appalled at our rapidly deteriorating global condition so I've written articles for family, friends & colleagues since 2007; warning them and doing my best to explain what's happening, what we can expect in the future and what you can do to prepare and mitigate the worst of the economic, social, political and nuclear fallout. As a public service in 2010 I decided to create a blog accessible to a larger number of people because I believe that knowledge not shared is wasted.
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