Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Deteriorating Economic Conditions From Main Street to Wall Street

Economics / US Economy Nov 09, 2007 - 05:22 PM GMT

By: Peter_Schiff

Economics Best Financial Markets Analysis ArticleRecent reports of better than expected job growth and a 3.9% gain in 3rd quarter GDP have spawned much talk about how the resilience of the American consumer is enabling the country to weather the subprime storm.  In reality, the unfolding financial crisis on Wall Street is in fact a direct result of the deteriorating economic conditions on Main Street .

The recent rosy GDP data was made possible only by reporting annualized inflation for the quarter at the absurdly low .8%. This historically low inflation rate makes nominal GDP gains appear to be substantive. Similarly, the October payroll report relied on significant job growth that the government claims took place in construction and financial services! Given all the job cuts in these two sectors, such assumptions are clearly absurd, and paint an unrealistically sunny picture of the U.S. employment landscape.

The problems for the major financial firms such as Citigroup and Merrill Lynch are rooted in Main Street 's inability to repay mortgages, and the fact that many homes are worth less than their underlying loans. With housing prices falling, adjustable rates resetting higher, lending standards tightening, credit card debt mounting, and wage growth failing to keep pace with living costs, the American consumer is finally reaching the end of his rope. Without the ability to take on additional debt, he simply can no longer keep spending.

As Wall Street is beginning to fess up to huge losses, similar “write-downs” are becoming evident on Main Street . Just like the big banks padded earnings by collecting large fees on securitized loans they knew were riskier than advertised, U.S. GDP has been padded by consumers spending borrowed money. As the debts mount and servicing costs soar, there is simply no way for consumers to keep spending. Just like Wall Street's past profits sowed the seeds of today's losses, the boost to past GDP provided by excess consumption will lead to big declines in future GDP.

The dramatic collapse of the U.S. dollar, and the Fed's failure to respond, provides fresh evidence of American economic weakness. If the Fed believed that the economy was as strong as government statistics suggest, it would have the flexibility to reverse the dollar's decline. The only reason for their inaction is that the Fed is willing to accept higher inflation and a weaker dollar to contain the recessionary forces clearly building on Main Street .

Despite Ben Bernanke's testimony before Congress, in the long run domestic prices are determined by the value of the dollar. The weak dollar does not only affect tourists or the price of imports, but the price of all goods, regardless of where they are produced. All domestic producers have the ability to export their production. As the dollar falls, American consumers are forced to pay higher prices to dissuade them from doing so.

The dollar's fall is now so pervasive that the world is walking away from it en masse. The story has even been given some sizzle with the announcement from Brazilian supermodel Gisele Bundchen that she will no longer accept modeling contracts in dollars. Never seeing a cloud attached to any silver lining, knee-jerk bulls such as Larry Kudlow have suggested that Bundchen's decision is a contrary indicator that the dollar has bottomed. In truth, the only notable bottom here belongs to Gisele herself.

Supermodels are not traders and her dollar bearishness should not be confused as a legitimate contrary indicator of market sentiment. Her demands simply reflect a rational decision not to be paid in a currency that's future value is in doubt. Gisele's lack of confidence in the dollar is symptomatic of a serious problem, especially since confidence is the only backing the dollar has. Should Gisele's concerns become the equivalent of a new fashion trend, the problems on Main Street are about to get a lot worse.

Despite the fact that my critics (such as Tobin Smith, on Fox News' Bulls and Bears last week) point to phony government statistics to discredit my economic predictions, the actions in the markets continue to validate every single one of my forecasts. For investors, the urgency to divest themselves of U.S. dollar denominated assets has never been greater. Recent comments from a prominent Chinese government official confirm that time to do so is indeed running out.

For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

By Peter Schiff
Euro Pacific Capital

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 , download my free research report on the powerful case for investing in foreign equities available at , and subscribe to my free, on-line investment newsletter at

Peter Schiff Archive

© 2005-2019 - 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

6 Critical Money Making Rules