The history of American economics is replete with grand stories of gratuitous bad calls and then those economists who made great calls but were silenced because it went against the narrative of the powers that be.
In 1978, after being admonished for daring to use the word “depression” when discussing the dangers the US economy was facing during White House meetings with President Jimmy Carter, the Chairman of Council on Wage and Price Stability Alfred E. Khan elected to use a substitute euphemism. This excerpt from Time Magazine, December 11, 2008:
When he said that there is the possibility of a “deep, deep depression” if inflation continues to soar, the President was furious. Kahn responded by purging the word depression from his vocabulary and instead using “banana.” So he now says: “We’re in danger of having the worst banana in 45 years.”
Folks, we are facing the worst banana since 1981 and the Chairman of the Federal Reserve is not the one relaying the message. Again.
Time to call on the good doctor of economics, the one staffer who can warn us all as to what is happening and how bad this recession could get, Doctor Copper.
The China Hype and Copper
The official “narrative” for copper’s dramatic rise in the past year was the Chinese recovery and how China would need copper for it’s consumer based recovery which would drive their residential real estate market and a new building boom.
This is not a new story however, the media promoted more stories on the boom right after the pandemic, as reported in this story from MetalMiner:
What do China’s surging copper imports tell us about the economy for 2021?
Excerpted:
The rebound has been impressive.
Construction of new high-speed train lines to smaller provincial cities and new motorways connecting remote cities left behind in previous plans in part drove the recovery.
The housing sector has also boomed. Overseas demand has boosted manufacturing, particularly PPE and electronic goods, even as other exporters have suffered by lockdowns in those markets.
China’s economic stimulus to spark robust copper consumption in 2024
The story above from Energyworld via The Economic Times of India was reflective of the mainstream financial media in the United States and its fixation with the consumer recovery in China from the pandemic and how they would stimulate a moribund real estate and building market.
Dr. Copper’s price chart in 2021 after the pandemic, did not lie:
For the new reflationary boom that the Fed and other central banks wanted, including the PBOC, the mild rise in commodities was not seen as problematic. Especially since the Chinese government had chosen a more consumer centered approach to reflating their economy after the pandemic.
As the boom petered out however, the markets began to sniff out the weaknesses inherent in the Chinese economy as economic stagnation took the stage in 2024.
Unfortunately for the Bubblevisions and those who thought they had everything figured out, the Chinese economy has floundered domestically in 2024. The financial crisis rotating around their overbuilding and lack of demographic and economic growth to justify more residential building seemed to mystify some Western analysts.
From last month via Mining.com:
Copper price slides from record on Chinese stockpiles
Excerpt:
The price of copper has slid from its record high after China’s real estate turmoil increased storage of the wiring and plumbing metal.
A pound of copper was at $4.376 on Thursday, down 11% from $4.925 on May 20, according to Mining.com. Stocks of the metal in Shanghai Futures Exchange warehouses reached the highest level in four years at 330,000 tonnes this month, according to Bloomberg figures.
Thus when one sees that story, with a dramatic drop from the peaks, the chart might make some sense to the retail investor, but it’s not the complete story.
Once copper broke out of its range, the theory was that this was due to internalized Chinese demand but Chinese investors and managers took advantage of the price soaring early this year. Need some proof, well here it is, from Fastmarkets.com:
China’s refined copper exports surge to 8-year peak and high exports continue
Think about it. Copper inventories were backing up to all time highs in Shanghai, but copper exports hit a record. It would seem to this blogger that China has created a strategic stockpile where domestic concerns are supplied by cheap imports and profits secured with exports of processed lower priced copper to world markets at current higher market prices.
Thus while everyone is trying to read too much into Dr. Copper’s activity level in one nation, the bigger picture of global demand is being ignored due to a Eurocentric and American economic media bias towards Asia. The reality is that China is managing its stockpiles brilliantly while ensuring it has enough for emergency demands such as a war, or isolation due to sanctions from Western partners.
It would seem to this author that the PhD. in economics that Dr. Copper has was also teaching its Chinese counterparts. Reduced dependency on the Western economic model will be painful initially as it is now, but in the end will provide greater economic independence and potential avoidance of some of the perverse boom-bust cycles that have impaired recent European and US economic growth. If one doesn’t think that it is possible, I would suggest a quick study of how Russia succeeded and has become the model for nations like China and India by withdrawing from dependency on the Western system.
Thanks to the cyclical nature of the central banks expansive monetary policies in the West, the economies are once again apparently heading for another inflation then deflation cycle with a sizeable economic contraction. It’s no wonder the rest of the industrialized world is trying to decouple from this insane cycle of monetary expansion and contraction to prevent their own nations from becoming entangled in these dollar and Euro dependent cyclical traumas which lead to political instability.
Meanwhile, in the United States and Europe, where nobody seems to listen, Dr. Copper is screaming “Banana!“
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