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darkstar
26266 Posts |
 Posted - 11/04/2009 : 2:33:44 PM
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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 may not be able to afford. These 'homeowners' may soon 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. |
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homer5
2252 Posts |
Posted - 11/04/2009 : 2:43:39 PM
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In financial planning, we were always concerned with increasing buying power. Increasing dollar balances doesn't necessarily do that. It's not how much money you have, it's how much it will buy that counts.
Using this traditional measure of increasing wealth, we, as a country, are heading toward the poor house at break neck speed. |
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darkstar
26266 Posts |
Posted - 11/04/2009 : 2:49:38 PM
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| I just realized it's been a yr since I started buying/selling GOLD, it was selling for $818/oz when I started, today it's $1087/oz. over a 20% increase, what else has compared to it?... |
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homer5
2252 Posts |
Posted - 11/04/2009 : 3:08:43 PM
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Nothing comes to mind. Perhaps shorting the dollar comes close.
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craigppls
2116 Posts |
Posted - 11/04/2009 : 3:32:08 PM
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quote:
Originally posted by darkstar
I just realized it's been a yr since I started buying/selling GOLD, it was selling for $818/oz when I started, today it's $1087/oz. over a 20% increase, what else has compared to it?...
As investments go...20% is nice...but there were far more profitable trades than gold this year...
You would have done far better putting the same money in say...Apple
In July thru Sept...you also miss my favorite of the year...AIG
Another plus 100% gainer for me this year is Starbucks |
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