Many analysts are blaming the recent GDP revision-the largest since 1976-on the weather this past winter. It was the worst winter in many years. Even so, that even such a brutal winter can probably only account for about half of the decrease in GDP. Furthermore, with plenty of quantitative easing and record low interest rates, it shouldn’t have been that bad. Even if you cut the current 3% figure in half and make it only minus 1.5%, That’s still terrible…way off the estimates. Worse, estimates for the second quarter have been downgraded from a 4% increase to 3%.
The consumer price index is also weak. The most recent figure was 0.2% after being flat in April and consumer spending accounts for 2/3rds of US economic activity. Two thirds of your economy should not be based on spending but instead on manufacturing. Adjusted for inflation, consumer spending actually fell. With such figures, we don’t know what’s really going on. We do know it’s weak…We see in number after number…very weak growth.
Stagflation is also increasing in the US, even though it is not being acknowledged as a classic threat and symptoms of inflation – slow growth, high unemployment and inflation are present. Recent economic data shows weak US factory output and home building data suggests that the world’s largest economy is slowing down again.
Official inflation numbers in the US remain benign as the Fed’s continue to make many adjustments to the methodology of calculating inflation in the last 20 years. The many adjustments made in the last few years is a clear indication that the consumer price index formula previously used is no longer an accurate measure of the real level of inflation.
What do the numbers mean?
Expect a rise in interest rates by the first quarter of 2015. The current artificial low interest rates are robbing the average person of the future. The ability to put money in a savings account for a rainy day is a thing of the past.
Who is benefiting?
Equity markets, since investors can borrow money for almost nothing.
Who’s borrowing the money?
Mergers and Acquisition companies. M&A activity in the last 6 months has been averaging $10 billion a day, or nearly $2 trillion in total. Such figures are similar to those seen in 2007, before the Panic of 2008. Cheap money is also fueling the real estate market. It’s being engineered from the top. However, when interest rates rise, as I believe it will occur early next year, the economy will go down again.
The downbeat of media coverage about reasons why gold should go down is another way to manipulate prices. At the same time Latin American countries pawn their gold with Goldman Sachs.
The Fed’s goal is to keep you in currencies that aren’t worth the paper they are printed on. When interest rates go up…[it will] strengthen the dollar, in theory, [but] even if does, [it will be] short term. Why? Because, when interest rates rise, the economy goes down as there is less available spendable income due to the rise in the cost of money They’ll come up with another scheme to try to pump up the economy under another name.
Chart: Copyright 2011 by Bloomberg.
In China, the real estate bubble has already burst and money is flowing out of Hong Kong into the United States.
Where are we headed?
The days before 9-11, President Bush’s popularity hovered around 50%, with the recent dot.com bubble collapse and a recession. After 9-11, the Federal Reserve lowered interest rates to 46 year lows, which ignited another boom. Look out beyond the economy to geopolitics. The destabilization of the Middle East, in Syria, Iraq, Yemen, and Bahrain destabilized, as well as the crisis over Ukraine as threatening a possible war. But, the US can’t afford a war, neither can the world. With recent spikes in oil prices, however, this is the perfect recipe for economic panic. If there is economic panic, it may be an excellent time to invest in gold.