Sunday, April 3, 2011
The U.S. financial system is like a junkie that needs continually increasing amounts of "junk" to get the same "buzz". So what is the U.S. financial system addicted to? It is addicted to money and debt. For many years, whenever the Federal Reserve would lower interest rates or the U.S government would borrow and spend more money, the U.S. economy would respond positively. But just like with any other kind of artificial stimulation, over time it has taken greater and greater amounts of debt and cheap money to get a response from our economic system.
So yes, the fact that the official unemployment rate went down 0.1% last month is good news, but considering the massive amount of spending that the U.S. government is doing and considering the gigantic quantity of money that the Federal Reserve is injecting into the financial system, the truth is that the unemployment rate should be falling much faster than that. So don't be fooled by the good economic numbers and don't be fooled by the financial "sugar rush". The U.S. government and the Federal Reserve have been pulling out all the stops to stimulate the economy, and the fact that all of their efforts are barely moving the unemployment rate at all is an indication of just how far our economic situation has degenerated.
Many in the mainstream media were extremely excited when the U.S. Bureau of Labor Statistics announced that the U.S. unemployment rate declined to 8.8% in March. U.S. stocks soared as investors enthusiastically welcomed the news. But should we all really be jumping up and down over this?
The truth is that some other measures show that the unemployment situation in the United States is becoming worse.
According to Gallup, the number of Americans that are either unemployed or working part-time but desiring full-time work actually rose from 19.8 percent in February to 20.3 percent in March.
So let us not get too excited about the employment situation. Yes, unemployment is not spinning wildly out of control at the moment and that is good news.
However, when you look at the larger picture things look rather grim.
What the U.S. government and the Federal Reserve have been doing is that they have been mortgaging our future big time for short-term economic gain.
This year alone, the U.S. government is going to run an all-time record budget deficit of approximately 1.6 trillion dollars. By borrowing 1.6 trillion dollars that we do not have and spending it into the system, it does stimulate the economy.
There are some members of Congress that would like to implement substantial budget cuts, but most members of Congress fear doing too much budget cutting right now because it would "harm the economy".
And you know what? They are right - budget cuts would harm our economy in the short-term.
But continuing to pile up all of this debt is setting the stage for an absolute economic nightmare in the mid to long term.
We have lived far, far beyond our means for decades, and most of our politicians are acting like this can go forever.
But tell me, does anyone out there actually believe that we can keep expanding the national debt like this indefinitely?....
Yes, government spending does stimulate the economy. The Keynesians are right about that.
However, by accumulating a national debt that is spinning wildly out of control, we have completely destroyed the economic future of this nation.
The Federal Reserve has been very busy trying to stimulate the U.S. economy as well.
Over the past couple of years, the Fed has been injecting massive amounts of money into the financial system. The theory is that the financial system will loan this money out to the American people and that will stimulate the economy and create more jobs.
Well, that may very well be true to a certain extent in the short-term, but as I wrote about yesterday, in the long-term this is going to create a substantial amount of inflation.
The chart posted below cannot be emphasized enough. It shows how the Fed has dramatically increased the size of the adjusted monetary base since mid-2008....
Yes, all of this new money will stimulate economic activity, but it is completely and totally ludicrous for Ben Bernanke to attempt to deny that this is also going to cause significant inflation.
So when taking a look at the economic numbers, it is absolutely critical to keep in mind that our "authorities" have pushed all the chips to the middle of the table in an all-out attempt to stimulate the economy in the short-term.
The small economic "sugar rush" that we are experiencing right now is all we have gotten out of it so far.
Sadly, this is about the best that the U.S. economy is going to do from now on. Things really are not going to get much better than this.
Yes, unemployment numbers might come down a little more, but pretty soon inflation is going to really kick in and that is going to have a really negative impact on tens of millions of Americans.
First of all, when inflation really starts taking off it is going to be absolutely devastating for those on fixed incomes. Many of them will be completely wiped out.
Secondly, those that do have jobs are going to find that their incomes are not nearly keeping up with inflation.
In fact, we are seeing this starting to happen already.
According to the Bureau of Labor Statistics, U.S. workers in the private sector only saw their pay increase by 2.1% during 2010.
So did what we are paying for food and gas only go up 2.1% in 2010?
Of course not.
So are things getting better so far in 2011?
One of the depressing things about the new numbers released by U.S. Bureau of Labor Statistics was that wages for U.S. workers did not increase in March.
According to the BLS, the average U.S. worker earned $22.87 an hour during the month of March, which is exactly the same number we saw in February.
So inflation is going up and wages are staying flat.
That means that American family budgets are going to be squeezed even more.
In addition, the numbers from the BLS show that it is still incredibly difficult to get a job. In fact, the average length of unemployment in the U.S. is now an all-time record 39 weeks.
So is anyone doing well right now?
Well, yes - as I have written about previously, those at the very top of the food chain are doing quite well these days.
According to USA Today, median CEO pay soared 27 percent during 2010. For the year, median CEO pay was a stunning $9.0 million.
Wouldn't you like to be making 9 million dollars a year?
According a recent report by CNN, the 25 highest-paid hedge fund managers in the United States combined to bring in an astounding $22.07 billion in income during 2010.
Wouldn't you like to get just a small piece of that?
All of the measures that the government and the Federal Reserve are using to stimulate the economy are causing tremendous distortions in our financial system.
Wall Street is absolutely swimming in cash right now. There are some people that are making obscene amounts of money.
But ultimately the party is going to end for all of us.
It has been incredibly foolish for the government and the Fed to go "all in" in a desperate attempt to boost short-term economic numbers.
Our long-term economic future is completely gone. Our financial system is heading for a horrible collapse. It is not a matter of "if" it will happen, but rather "when" it will happen.
You better buckle up and get ready.