The economy looks like it’s going into another official recession, unless we get “good news” relatively soon. Manufacturing, unemployment, real inflation, underemployment, the labor market participation rate, real income, GDP — it’s all bad news right now, and has been for the last year. The only real “good news” has been data mostly manipulated by the government and data that only shows part of the story.
This is difficult for people who trust government to fix all economic problems, because they’ve spent about 5 years trying to “fix” a slowing economy, and they’ve failed. The real story is that we have something like 7 trillion dollars in new debt, and our economy is even in worse shape than before. This isn’t good.
I’m going to look at a handful of the most important trends to watch for the US that reveals a lot about the direction in the long-term our country is heading. This might sound depressing, but it’s important for us to understand if we’re to position ourselves accordingly.
Unemployment and Underemployment
Essentially all of the jobs created in May were part-time jobs. The sad thing is that if you lose your job and are required to work part time, lose your house, your cars, your retirement savings, and your kids have to drop out of college — you’re never factored into account when people look at the “unemployment” rate, because technically you have a job.
If anything, your company could make you work half the hours, hire another person to work the same hours, and put you both below the level where they’re required to pay certain things like overtime, insurance, etc — and this would make the employment rate go “up”. This is, of course, ludicrous. It’s just gaming the numbers.
Real Household Income and Net Worth
This is related to the above point, and it’s an example of why it all matters. Between 2007 and 2010, real household worth fell by about 40%. That’s not a typo. Real income fell over 7%. This was before even more jobs were replace with part-time jobs, meaning it could very well be worse right now.
This is important, because it means that when prices go up, and incomes go down, people who were in the middle class are falling into poverty. People who had jobs and a house and two cars are losing the cars, losing the house, technically still have a job, but are cutting spending, cutting investment, and are struggling just to stay off the streets.
That’s a trend that apparently hasn’t stopped — even with all the food stamps and trillions in spending and bailouts.
The National Debt
This is the really scary thing, and vitally important to understand, especially for people who are investing in gold. While we likely have a decade or three before the national debt literally can’t be paid, there’s always the chance that the bond market could “revolt” and send us into a debt spiral far, far worse than the one we’re already in.
In such a situation, the government would likely be forced to monetize the debt in such a way that is worse than what’s been done in the past.
But perhaps the most obviously negative thing about the national debt is the fact that we have to pay it. No, we don’t have to pay incredibly high rights — but the interest on our debt is already higher than income taxes in America. Think about that for a second. That’s how far gone we’ve already gone.
Since Obama has become president alone, the national debt has gone up over $5 trillion. The entire US economy is about $15. If Obama stays president, four years from now we’ll likely see our national debt continue to skyrocket to the point where managing it will essentially be impossible without monetization.
Already the Fed has been liquidating debt through the printing press, essentially buying up Treasury Bills with newly created money. Last year, over half of all new debt created was purchased by the Federal Reserve.
That means that the Fed is literally printing money to pay for the debt already, though in such a way that it’s not yet creating obvious inflation because people are still hoarding cash, and so much of the government spending is completely wasted money leading to malinvestment (like Solyndra). Also, just printing 10% new money doesn’t mean prices go up 10%, even though it sure would make the world a more simple place if it did.
In the end, these are three trends to watch. I’ll be writing more in the coming weeks about all of them, and what they mean specifically for people investing cautiously.
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