Financial data points to trouble, whether we want it to or not

Anyone willing to evaluate the numbers objectively will see mountains of economic trouble on the horizon. Global stimulus efforts in the last year have been colossal, but the results are meager—at best. Ambrose Evans-Pritchard wrote this about the money data in a recent column:

Private credit is contracting on both sides of the Atlantic. The M3 money data is flashing early-warning signals of a deflation crisis next year in nearly half the world economy. Emergency schemes that have propped up spending are being withdrawn, gently or otherwise.Unemployment benefits have masked social hardship until now but these are starting to expire with cliff-edge effects.

Continuing, Evans-Pritchard enumerates an impressive list of unmistakable symptoms of a world in financial trouble. Then he points to the trend among financial experts of ignoring the alarming data:

Fed Chairman Ben Bernanke spoke in April 2008 of “a return to growth in the second half of this year,” and again in July 2008 that growth would “pick up gradually over the next two years.”He could only have thought such a thing if he was ignoring the money data. Key aggregates had been in free-fall for months.I cited monetarists in July 2008 warning that the lifeblood of the Western credit was “draining away.” For whatever reason (the lockhold of New Keynesian ideology?) the Fed missed the signal.So did the European Central Bank when it raised rates weeks before the Lehman collapse, blathering about a “1970s inflation spiral.”Yes, the money entrails can mislead. The gurus squabble like Trotskyists. But you ignore the data at your peril.Tim Congdon from International Monetary Research says that U.S. bank loans have been falling at an annual pace of almost 14 percent since early summer: “There has been nothing like this in the usa since the 1930s.”

Decades ago, Herbert W. Armstrong said that massive bank failures would cause “chaos, economic chaos all over the world for many nations and millions and billions of people.”

Pundits’ refusal to acknowledge the data will only bring this chaos about more quickly.

Evan-Pritchard concluded:

Draw your own conclusion. Western central banks will have to “monetize” deficits on a huge scale to stave off debt deflation. The longer they think otherwise, the worse it will be.