Ever wonder what happened to that sense of hope and change that most of the voters in the United States were swept up by last fall?
America does need“hope.” America does need “change.”
However, the mainstream Republican and Democratic party machines are both repeating like bad records – “morespending,moretaxes,morewar,more debt.”
If you flip the record, all you hear is “lessliberty,fewerjobs,lessprosperity.”
Whydoesn’tAmerica consider a sound money and slashing federal spending?
Whydoesn’tAmerica consider auditing and cutting back the powers of the ruinous FED?
Whydoesn’tAmerica consider destroying theIMMORALandUNNECESSARY federal income tax?
Whydoesn’tAmerica consider a different foreign policy – where there is third choice besides bombing or economic sanctions? Why not replace the blowback our foreign policy has resulted in with a little love and peaceful trade?
While all the talk at present is about economic corners turned and markets charging ahead, no one is paying much notice to an American economy deteriorating before our eyes. These myopic commentators seem to be simply moving past the now almost-universally held conclusion that before the crash of 2008, our economy was on an unsustainable course. If these imbalances had been corrected, then perhaps I too would be joining in the euphoria. But evidence abounds that we have not veered at all from that dangerous path.
Last week, the Bureau of Economic Analysis reported that consumer spending as a percentage of U.S. GDP has risen to 71%, a post-World War II record. This level is notably higher than other wealthy industrialized countries, and vastly higher than the levels sustained by China and other emerging economies. At the same time, our industrial output is contracting, our trade deficit is expanding once again (after contracting earlier in the year), and our savings rate is plummeting (after an early year surge).
The data confirms that government stimuli are worsening the structural imbalances underlying our economy. The recent ‘rebound’ in GDP is not resulting from increased economic output, but merely from the fact that we are borrowing more than ever. That is precisely how we got ourselves into this mess. An economy cannot grow indefinitely by borrowing more than it produces. Not only is such a course untenable, but the added debt ensures a deeper recession when the bills come due.
This soon-to-be-called depression will not end until the pendulum of consumer spending habits swings violently in the other direction. This will be a jarring change, but it is the splash of cold water that we need to return our economy to viability. I believe that consumer spending as a share of GDP will need to temporarily contract to roughly 50% of GDP, before eventually moving toward its historic mean of 65%. Such a move would indicate a restoration of our personal savings, a decline in borrowing and trade deficits, and an increased industrial output. That would be a real recovery.
In the meantime, the higher the spending percentage climbs, the more painful the ultimate decline becomes.
It doesn’t matter how many times you’ve sent Congress a letter on a given issue, or even if you sent one yesterday — every new fact we give you is a new opportunity to tell Congress what you want. Seize the opportunity!
by John Browne – Senior Market Strategist, Euro Pacific Capital
Earlier this year, I predicted that the 2009 rally in U.S. stocks could bring the Dow Jones Index as high as 10,000. It looks like that level has been achieved. If, at this point, the index reverses course, I would have made a fairly good prediction.
However, it is important to get beyond the charts and look at the fundamentals. The furious six-month rally in the stock market has certainly not been mirrored by the economy as a whole. Instead, the country remains in recession, with unemployment continuing to rise and corporate earnings continuing to decline. This has pushed up trading multiples to the point that where value is now a distant memory. How could the stock markets have recovered so strongly in the face of economic recession?
First, this rally is mostly about the financial sector. The U.S. government decided that, no matter what the cost to the citizen, the major banks had to be saved. Bank losses were transferred to public books and unprecedented funds were showered on the banks to keep them solvent. Bank borrowing costs were reduced to near zero and, for the first time, interest was paid on reserves held at the Fed. Many of these banks were designated as ‘too big to fail,’ so they became a nearly risk-free bet.
The result: bank profits skyrocketed. Just today, JP Morgan reported that profits surged sevenfold from the second to the third quarter of this year! In fact, over the past six months, stock performance of financial sector firms was 66% better than the S&P 500 as a whole.
Second, the rally is mostly inevitable bounce. In the third quarter of 2008, in the face of collapsing stock and commodity markets, investors piled into cash instruments such as Treasuries. However, once the crisis appeared to pass, the same investors fled these zero-return ‘investments’ back into corporate debt, and then equities. Such massive fund flows have provided the tide upon which the current rally is based.
For those market boosters who are prattling on about the possibility of a “jobless recovery,” I offer an invitation to join me for a breakfast of “fat-free bacon,” “eggless omelets,” and “no-carb bread.” As unappetizing as such a meal may sound, it would nevertheless offer more substance than the oxymoronic concept of an economic resurgence without job creation.
Those who do cling to the absurd belief that, absent exponential productivity gains, the economy can expand while workers are being laid off will undergo a massive test of their convictions now that it’s clear the employment picture is bleak. Today’s weaker-than-expected report on non-farm payrolls revealed that employers shed 263,000 jobs in September. The losses propelled the headline unemployment rate to a 26-year high of 9.8%. U6, the Bureau of Labor Statistics’ most complete measure of unemployment, has risen to a dismal 17%. This figure includes those people who want to work full time, but have simply given up looking, or who have accepted part-time work in the interim. As it is similar to the methodology used during the Great Depression, U6 offers better historical perspective on the severity of our current crisis.
Taken together with yesterday’s larger-than-expected pickup in unemployment claims (first time claims rose by 17,000 to 551,000), today’s report makes it certain that the job market is still contracting, even while some indicators like GDP and consumer confidence are moving in the opposite direction.
There is no question that the sense of panic has temporarily subsided. In recent interviews, Treasury Secretary Geithner has been almost giddy in his descriptions of the recovery – all the while crediting his own policies for averting disaster. Americans are once again taking the government’s bait by spending money they don’t have to buy things they can’t afford. Evidence of this trend was contained in data released earlier this week which showed that even while income growth was largely stagnant, U.S. consumers showed the biggest month-over-month increase in personal spending in ten years! With the same report showing a 25% drop in the savings rate, the source of the spending money is clear. But depleting savings and increasing borrowing does not a recovery make.
To really recuperate, the government must allow market forces to restructure our economy. The government and individuals must rein in their spending; we must replenish our stock of savings, allow interest rates to rise, asset prices to adjust to economic reality, insolvent businesses to fail, and wages to reflect productivity. To accomplish these goals, subsidies that distort market forces must be removed and regulations that undermine our competitiveness must be repealed.
Congressman Charlie Dent is taking no proactive actions to prevent a collapse in the purchasing power of the dollar. Instead, his actions are worsening the situation.
At the last town hall Congressman Charlie Dent gave on September 21, I attended so that I could hear what he and our fellow citizens had to say. I also delivered a paper copy of my plan for the Open Office. The Congressman gave me a chance to ask a question, which I commend him for. I did not have a chance to start my camera to record my question, but it was done in a very polite manner, and went something like:
“Congressman Dent, since 1913 the Federal Reserve has destroyed well over 95% of the purchasing power of the dollar. I am very concerned about the future of our currency, the dollar. You just talked about saving money by not voting for the health care bill, but a couple months ago you voted for HR 3081, which awarded close to $50 billion in overseas foreign military and economic aid. HR 3081 gave over $2 billion in military aid to Israel, $1 billion in military aid to Egypt, $150 million in military aid to Jordan, $60 million in military aid to Colombia among many other nations. And just last week youapproved to spend $4.125 billion on government-sponsored car technology research in HR 3246. My question to you is this: what are you doing right now to prevent a collapse in the dollar?”
“The question is what am I doing right now. Specifically is not spend money unnecessarily. The money I am talking about is the $787 billion stimulus plan, it cost over a trillion dollars, which I voted against. It overspends. It borrows too much. It spends too much. It delivers far too little. Now, that is just one very specific example of what we can do to help us.
“I am very concerned about inflationary pressures at some point. The deficits that are being run up right now in this administration I think are unsustainable. I think are unsustainable. We are talking deficits in excess of 12%, 13% of gross national product. Now it’s true this country has run up deficits throughout much of its modern history. In the depression we did. Second world war we certainly did. And since the second world war we have generally – we have often run deficits. The worst deficit we have had this year was in the early ’80s in 1981 or 1982 of a deficit of about 6% of gross national product during the Reagan years and a Democratic Congress. Even during the war our deficits were 20% of gross national product but today, I think largely because of this stimulus in particular. I think that we are seeing, again, an unsustainable debt level.
“Here I have now [holds up copy of HR 3200, the old Obama health care bill]. This is one reason why I oppose this bill because what it does is further drive our deficits well into the future. And its not just the first 10 years. Its the second 10 years. The federal government does a lousy job of projecting long-term entitlement costs. We don’t do a good job of it. We usually say, OK, Medicare 1965 is going to cost whatever was projected. It has cost far greater than that. We just don’t do a good job of it. I believe that the costs here in this legislation [Obamacare bill] are significantly understated.
Slides 4-36 of the below presentation have been presented to several groups around the district for educational purposes. Although you are missing my critical narrative and explanations, I invite you to take a look. If you do disagree or find something new, check my sourcing and citations.
While the hour-long presentation is of course only a snapshot, or a look at the critical pieces of puzzle, I emphasize the importance of the gold market, and view the housing crisis as merely a symptom of the causes – excess FED inflation and artificially low interest rates that were held too low for too long. The irony is not lost that currently the FED interest rates is roughly 0.15%, far lower than previously. In the interests of time and for simplicity, I omitted the Treasury market almost entirely – just a brief mention in the slide on the national debt. The Treasury market is definitely also quite critical.
by John Browne – Senior Market Strategist, Euro Pacific Capital
As a part-time member of the press corps, I had the good fortune to attend many of the public sessions at last week’s G-20 meeting in Pittsburgh. As impressive as it was to closely witness the gathering of countries representing some 85 percent of the world’s GDP (along with the governors of the World Bank, the IMF and the European Central Bank), it was equally remarkable to witness the immense security forces deployed to restrain those who feel the gathering harbored the forces most responsible for the world’s economic and financial problems.
The meeting got off to an unexpectedly gloomy start as President Obama, accompanied by UK Prime Minister Gordon Brown and French President Nicholas Sarkozy, jointly announced the discovery of secret Iranian nuclear facilities. These revelations were eye opening, and the mood in the room was nothing short of electric. This contrasted sharply with comments offered the day before by Russian President Dmitri Medvedev, who reiterated his country’s reluctance to impose tougher sanctions on Iran. As a result, the risks of continued conflict in the Middle East remain a global preoccupation, with major implications for the prices of gold and oil.
But despite the geo-political setbacks, the failure to achieve any major agreements, the somber atmosphere, and the sanguine final communiqué, the U.S. stock and junk-bond markets continued to roar in nervous volatility.
U.S. markets appear to have taken on a casino-like life of their own, while the fundamentals and even some technical measures urge caution – such as the U.S. dollar plummeting to new lows. Something just does not add up. This feeling may have been the root cause of the somber mood enveloping the G-20.
Increasingly, there appears to be a distinctly volatile disconnect between market sentiment and practical reality. It is eerily similar to the market of 1931, which presaged the second of six major downturns of the Great Depression, leaving U.S. stock markets at only 10 percent of their pre-crash values.
There are a number of concerns that have caused some of the world’s shrewdest observers to be less than completely credulous about the current ‘recovery.’ Read More »
“It has been argued that full disclosure of details of funding facilities like TALF and PDCF, that enabled massive bailouts of Wall Street, would damage the financial position of those firms and destabilize the economy. In other words, if the American people knew how rotten the books were at those banks and how terribly they messed up, they would never willingly invest in them, and they would fail. Failure is not an option for friends of the Fed. Therefore, the funds must be stolen from the people in the dark of night. This is not how a free country works. This is not how free markets work. That is crony corporatism and instead of being a force for economic stabilization, it totally undermines it.” — Congressman Ron Paul
The Federal Reserve has manufactured and spent hundreds of billions of dollars to bail out and prop-up irresponsible financial firms. These firms have received huge benefits at your expense, but . . .
You’re not allowed to know who got how much, and under what terms. This information was NOT heard at the hearings about the “Audit the Fed” bill. Therefore, the only way to learn the answers is to . . .
Use your personal comments to say something similar to what I’ve said in my own letter to Congress . . .
The “Audit the Fed” hearings proved that the Federal Reserve will not reveal its activities without an audit. A majority of the House has co-sponsored the Audit the Fed bill. This leads me to wonder what dark forces are keeping it from coming to a vote. I elected you to represent me, so please do your job. Force the leadership in the House and Senate to bring this bill to a vote! You must lead your “so-called” leaders. Make it happen! I URGE YOU TO DO IT NOW!
Ron Paul described in this week’s Texas Straight Talk column the recent hearing for HR1207 and the witnesses who testified on both sides of the issue. Here is part of it:
If the Fed gave its actual arguments against a full audit, they would not have mentioned anything about political independence or economic stability.Instead they would admit they don’t want to be audited because they enjoy their current situation too much.Under the guise of currency control, they are able to help out powerful allies on Wall Street, in exchange for lucrative jobs or who-knows-what favors later on.An audit would expose the Fed as a massive fraud perpetrated on this country, enriching a privileged few bankers at the top of our economic food chain, and leaving the rest of us with massively devalued dollars which we are forced to use by law.An audit would make people realize that, while Bernie Madoff defrauded a lot of investors for a lot of money, the Fed has defrauded every one of us by destroying the value of our money.An honest and full accounting of how the money system really works in this country would mean there is not much of a chance the American people would stand for it anymore.
Liberty Maven
Ever wonder what happened to that sense of hope and change that most of the voters in the United States were swept up by last fall?
by Peter Schiff, president of Euro Pacific Capital and author of 
by Peter Schiff, president of Euro Pacific Capital and author of .jpg)
At the last town hall Congressman Charlie Dent gave on September 21, I attended so that I could hear what he and our fellow citizens had to say. I also delivered a paper copy of 
by John Browne – Senior Market Strategist, Euro Pacific Capital
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