Best of the Week
Most Popular
1.Election Forecast 2015 - Opinion Polls Trending Towards Conservative Outright Win - Nadeem_Walayat
2.UK Solar Eclipse - End Time Sign, Judgement Day, Doomsday! - Nadeem_Walayat
3.Gold And Silver - When Will Precious Metals Rally? Not In 2015 - Michael_Noonan
4.Preparing for the Next Stocks Bear Market - Forecast 2015-2016 - Gary_Savage
5.Is a Stock Market Crash Imminent? - David Eifrig
6.Gold Price Slumps as US Dollar Soars, What's Next? - Nadeem_Walayat
7.US Dollar Forex Pairs and Gold Chartology - Rambus_Chartology
8.Election Forecast 2015: The Day Labour Lost the General Election - Nadeem_Walayat
9.The ECB Should End QE Next Month - EconMatters
10.Silver Price Poised to Surge - Zeal_LLC
Last 5 days
Ashcroft Poll Forecasts Nick Clegg to Lose Sheffield Hallam, But Tories to Rescue Lib Dems - 2nd Apr 15
Is the U.S. Headed for a Recession? - 1st Apr 15
Did The Fed Just Admit to Deep Uncertainty About Our Financial Security In Retirement? - 1st Apr 15
Gold Price Flat In Quarter In Dollars But 5% Higher In Pounds - 1st Apr 15
Financial Market Extremes: Expect Consequences - 1st Apr 15
Iceland Ponders Radical Banking Plan to Eliminate Fractional Reserve Lending - 1st Apr 15
How Traded Options Can Power a 300%-Plus Gain on Twitter - 1st Apr 15
You Can’t Afford Not to Invest in This Latest Yesla Technology - 1st Apr 15
Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - 1st Apr 15
Bitcoin Price Down Move Still in the Cards - 31st Mar 15
No Body Understands Debt - Living in a Free-Lunch World - 31st Mar 15
Will Gold Win Out Against the US Dollar? - 31st Mar 15
Middle East Balance of Power Matures - 31st Mar 15
Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - 31st Mar 15
Gold and Misery, Strange Bedfellows - 31st Mar 15
Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - 31st Mar 15
Don’t Celebrate the U.S. Housing Market Recovery Yet - 30th Mar 15
A Middle East Nuclear Holocaust - 30th Mar 15
Peak Gold? – Goldman Sachs Research Warns of Peak Gold Production - 30th Mar 15
With Yemen Burning, Arab Spring II Is Underway - 30th Mar 15
No FED Bets From the BIS - 30th Mar 15
Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - 30th Mar 15
Economic Recovery, Geopolitics and Detergents - 30th Mar 15
U.S. Dollar, Commodities and the Gold Miners GDXJ ETF Analysis - 30th Mar 15
Stock Market Short-term Downtrend - 30th Mar 15
David Cameron Election 2015 Debate Facts Check - Employment, Immigration, Debt & Deficit - 29th Mar 15
Stock Market About Ready to Crash! - 29th Mar 15
Reflections in a Golden Eye - Gold Market Rejection, Repatriation and Redemption - 28th Mar 15
Stock Market Inflection Point - 28th Mar 15
Gold And Silver - What Moved Price? Bab el-Mandeb And Uranus Square Pluto. What?! - 28th Mar 15
Stock Market Investment Parachutes; Do You Have Yours? - 28th Mar 15
Peak Gold Misunderstanding, is Gold About to Run Out? - 28th Mar 15
Deflation Watch: Key U.S. Economic Measures Turn South - 27th Mar 15
The Hard-Earned Truth About Recreational Real Estate - 27th Mar 15
Bitcoin Price Still in Important Territory - 27th Mar 15
Stocks Bear Market Conditions - Index Market Range Warning - 27th Mar 15
BEA Leaves Q4 2014 U.S. GDP Growth Essentially Unchanged at 2.22% - 27th Mar 15
Brazil Economy Victim of Vulgar Keynesianism - 27th Mar 15
Gold to Fuel Silver Price Upleg - 27th Mar 15
Gold and Silver Stocks Will Rise Again! - 27th Mar 15
Risk of ‘World War’ between NATO and Russia on Ukraine as Yemen Bombed - 27th Mar 15
FOMC Minutes Turned The Gold Tide - 27th Mar 15
Sheffield Hallam Election Battle 2015 - Lib Dems Go to War Whilst Labour Sleeps - 27th Mar 15
Gold Effect On Mining & Shale Wasteland - 27th Mar 15
How Stock Investors Should Play the 2016 Presidential Race - 26th Mar 15
MidEast Energy Alert: Why the Crisis in Yemen Could Get Ugly Very Fast - 26th Mar 15
Stock Market Downward Spiral of Dumbness - 26th Mar 15
The Monetary Approach Reigns Supreme - 26th Mar 15
Stock Market Large Gap Down, Despite the Algos' Push Back - 26th Mar 15
Crude Oil Surges, Gold price Spikes as Middle East Tensions Escalate - 26th Mar 15
The U.S. Housing Market Recovery Is Fabricated Optimism - 26th Mar 15
Why Yemen Is The Next Saudi-Iranian Battleground - 26th Mar 15
The Crude Oil Price Crash and China Economic Slow Down - 26th Mar 15
Global Financial Markets Are More Distorted Than Ever Before - 26th Mar 15
One More Stock Market Rally and Then a Huge Drop Expected - 26th Mar 15
Danger Will Robinson - Stock Market Crash Warning - 25th Mar 15
Learn the Basics of Corrective Elliott Waves - 25th Mar 15
Why CNBC Is Hazardous to Your Financial Health! - 25th Mar 15
Will Your Retirement Accounts Survive The Coming Tax Code "Revolution"? - 25th Mar 15
US Dollar - Americas Phoenix - 25th Mar 15
California’s Epic Drought: Only One Year of Water Left! - 25th Mar 15
What’s Wrong With Silver? - 25th Mar 15
SPX Futures Appear Weak. WTIC and Gold May Be at Max Retracement - 25th Mar 15
We’re at the Dawn of a “New Energy Age” - 25th Mar 15
A Very Weak U.S. Economic Recovery - 25th Mar 15
Zero UK CPI Inflation Rate Prompts Deflation Danger Propaganda For Fresh Money Printing - 25th Mar 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Economy Still on Life Support

Phony Global Economic Recovery is an Illusion

Economics / Economic Recovery Dec 04, 2012 - 11:32 AM GMT

By: Michael_Pento

Economics

Many investors still hope that the global economy will experience a significant rebound in 2013. I guess it is human nature to assume the optimistic position that our economic fate will turn to the upside with each new calendar.


In fact, a Bloomberg poll of 862 global investors taken this month showed that 66 percent of respondents believe in a stabilizing or improving global economy, compared to just over 50 percent in September. The survey also indicated that the world economy is in its best shape in 18 months as China’s prospects improve and the U.S. looks likely to avoid the Fiscal Cliff.

In sharp contrast, I believe the temporary illusion of global stabilization has come from a massive increase in public sector debt, artificially-produced low interest rates that can never be allowed to increase and central bankers that have taken their cue on how to conduct monetary policy from Gideon Gono (Governor of the Reserve Bank of Zimbabwe).  

If the politicians and bureaucrats in Japan, Europe and U.S. allowed their private sectors to deleverage, if they did not interfere with the correction of asset prices, if they allowed insolvent institutions to go bankrupt, and if they did not abuse their currencies and interest rates; then they would indeed be on a sustainable and free-market based pathway to prosperity.

However, because they have the collective hubris to believe recessions can be expunged from the business cycle, what we do see is the empirical evidence of a government-induced mediocrity in the developed world, which will only lead to a severe downturn in the GDP in the near future.

If the current strategies deployed led to economic prosperity, then international lenders would not have to undertake yet another bailout for Greece. The nation already defaulted on €172 billion worth of Greek bonds, which represented 85.5% of the total €206 billion held by the private sector in the early part of 2012. However, just this week they again had to restructure their debt by cutting the interest rate on official Greek loans, extending the maturity of those loans from the EFSF bailout fund by 15 years to 30 years, and be granted a 10-year interest repayment deferral on those loans.

Turning to China, if government spending was the solution, then the Shanghai composite index would not be down 20% in 2012 and now be trading at a four-year low. Also, if central bank counterfeiting from the ECB was the answer, Spain’s stock market would not be down 6% for the year. And if the U.S. was indeed rebounding after a multi-year recession, why is the S&P 500 down 4% since the end of this summer--especially in the light of the fact that it has not gained one point from the level it was five years ago?

If the global economy was about to make a turn to the upside, then industrial commodity prices would presage a rebound in growth. But instead copper prices are down from close to $4.00 per pound in February, to just $3.60 today. Oil prices were trading close to $100 a barrel in the summer and have sold off to just $88 today. If the global economy was about to make a significant move to the upside, why haven’t industrial commodities and equity markets begun to price in that improvement—especially in consideration of the massive amount of liquidity that has been added by central banks?

The truth is that the Great Recession was the result of too much debt, rapid money supply growth, asset bubbles and artificial interest rates.  Governments believe the economy can be remedied by placing all those conditions on steroids. They are wrong, and when falling real interest rates finally cause investors to demand a real rate of return on their holdings of government paper the game will be over.

In an effort to maintain the illusion of prosperity, politicians on both sides of isle will ensure that the Fiscal Cliff and Debt Ceiling in the U.S. will be avoided at all costs.  Any retracement in government borrowing of the Fed’s phony money will send the economy into a steep recession. That’s because the main borrower of Bernanke-Bucks has been Uncle Sam. If our fiscal imbalances are suddenly and sharply reduced then the money supply would shrink, which would send asset prices and the economy tumbling. And then the mirages of economic stabilization and improvement would rapidly vanish away.

Therefore, the developed world will continue to be mired in stagflation, not only next year but indeed until those governments are finally forced into addressing the real underlying economic problems.

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.
       

© 2012 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2015 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

Free Report - Financial Markets 2014