Monday, June 29, 2009
Japan's industrial production surged 14% in the three months ending May 2009. That's one more green shoot that demonstrates the global economy is not in free-fall and in fact is rebounding from the sharp decline of late last year. The down-sequence goes something like this: global demand collapsed as fear of widespread bank failures swept the markets; counterparty risk blew sky-high, with the result that banks stopped writing letters of credit; without letters of credit, global trade ground to a halt; as inventories built up, production was slashed. The up-sequence began early this year: Financial markets began to recover, as swap and credit spreads declined and liquidity returned; with counterparty risk rapidly declining, banks began writing letters of credit again; with letters of credit, global trade resumed; with confidence returning, demand started picking up; inventories began declining; and finally, with inventories declining, manufacturers are once again ramping up production. Evidence of this process can also be found in the rise this year of the prices of commodities, energy, and equities.
Posted by Scott Grannis at 9:07 AM