Last 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.
For a
more in-depth analysis of our financial problems and the inherent
dangers they pose for the U.S. economy and U.S. dollar, read Peter
Schiff's 2007 bestseller "Crash Proof: How to Profit from
the Coming Economic Collapse” and his newest release
"The Little Book of Bull Moves in Bear Markets."
Click here to learn more.
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importantly, don’t let the great deals pass you by. Get an inside view
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