Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
THE GLOBAL WARMING CLIMATE CHANGE MEGA-TREND IS THE INFLATION MEGA-TREND! - 3rd May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Economy Returns to Growth, Media Premature Boasting of Glory

Economics / Economic Recovery Nov 04, 2009 - 12:16 PM GMT

By: John_Browne

Economics

Best Financial Markets Analysis ArticleLast week, to the delight of its media cheerleaders, the government announced that economic growth had returned and the recession had ended. But before we start celebrating one quarter of modest growth, we should realize the only force driving this apparent recovery is an enormous increase in government spending. To finance its largesse, the government is now borrowing at a rate that has ordinary citizens and the international community extremely concerned.


Leading into the first election season under Obama's reign, this unprecedented government borrowing and spending is creating a false sense of security. The activity has allowed GDP to increase despite stagnation in corporate and consumer spending.

Small businesses – the most important creators of new jobs – are nervous. Due to uncertain economic conditions and a high degree of regulatory uncertainty, they are hoarding cash rather than investing. Indeed, their largest expenditures are often solely to replenish inventories.

Likewise, consumers are rationally hording their resources. Year over year, consumer spending – which constitutes 70 percent of GDP – is essentially flat. With such a large segment of the economy quiescent, the percentage increase in public sector spending has to be very large in order to push the GDP upward.

The new government spending spree has focused on major stimulus initiatives, including the new homebuyer tax credit and 'cash for clunkers'.

Early results are showing that spending on autos dropped to recession-levels immediately after 'cash for clunkers' ended. Meanwhile, some reports are estimating that the program cost $24,000 for every additional vehicle it caused to be sold.

The multi-billion-dollar tax credit for first-time homebuyers juiced real estate sales and provided a strong boost to GDP in the third quarter. But the net result is that many responsible young people, who had chosen to rent and save in the face of a declining housing market, are now saddled with mortgages they cannot afford. These 'homeowners' will quickly join the ranks of the foreclosed.

Perhaps the most concerning aspect of GDP growth is that, even with a deeply progressive Administration spending our children's children's money, the best we can achieve is a modest, fleeting boost in growth. Even the government's biggest apologists have a hard time explaining how these gains can last without continued stimulus. In short, this country is not just bankrupt today, but for generations to come. This is the real truth and should concern those with investments within the United States.

The unhappy situation in America, of which we have long warned, should be contrasted with the healthy growth experiences of other countries such as Australia, New Zealand, China and India.

The Australian central bank is now so confident in its growth potential that it has raised interest rates two months in a row. Though they have a center-left Government, the Aussies have managed to control stimulus spending and overall debt.

New Zealand is seeing an increase in real wages amid a strong Kiwi Dollar. Much more than GDP, this is a signal that economic growth is truly returning to this island nation.

China, a place where 9% annual GDP growth is considered a recession, is still developing its market economy while Obama cripples our own. Much fanfare was showered upon the launch of ChiNext, a stock exchange for privately-owned, small- and mid-cap Chinese companies. It surged in its first day of trading, showing the strength of that economy even outside the State-Owned Enterprise sector.

Finally, there is India. Though still far too closed to foreign investment, this country is making shrewd moves to protect its internal capital. In a deal announced today, India bolstered its gold reserves by 50% by trading $6.7 billion of its U.S. dollar reserve to the IMF. Not only is this a positive sign for India, it is a crushing verdict on our own lauded 'GDP growth.'

A currency's value reflects investors' faith in a particular nation. Though commentators are seizing on this figure or that to make the bull case, the dollar index belies their claims.

Rather than dancing in the dollars falling from helicopters, we should be concerned about their worth when they hit the ground. Unfortunately, fiscal responsibility has moved abroad – and the smart money isn't far behind.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in