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U.S. Policies Fail to Avert Hyperinflation
The U.S. sends weak economic and political signals insufficient for a meaningful and sustainable economic expansion required to gain back confidence of national and foreign investors, futureofdollar.com concludes. Stagflation is an imminent danger.
GDP numbers have been significantly influenced by government intervention into the economy and are rather poor at a closer look. Employment data shows that the labor market generally continues to stagnate with rising number of long-term unemployed workers. Government financial obligations including the national debt, Social Security, Medicare, and other benefits and mandatory programs continue to pile up moving the U.S. to the first place in the world for the highest debt to GDP ratio. Budget deficit is growing with no visible turning point. Low interest rates create a risk of stagflation. The market of Treasuries is about to collapse as investors, including China, are losing confidence in the financial stability of the United States.
Weak economy is accompanied by numerous political disabilities making the recovery almost impossible. The country was unable to create a powerful deficit reducing commission. It is unable to cut growing nonproductive military (security) expenses. It does not follow its own economic advice given to other countries in similar critical situations in the past. In addition, it doesn’t cooperate with countries, which will determine the future of the United States.
Finally, market constraints make the crisis in the U.S. even deeper. High oil prices add to economic slowdown and lead to an increase in core inflation. China’s peg to the dollar prevents export growth and creation of new jobs.
All these factors evidence against the future of the dollar as a global reserve currency. Moreover, altogether they indicate increased likelihood of hyperinflation in the near future. Futureofdollar.com was not satisfied with the government’s reaction to the problem, finding that the U.S. will be unable, or even reluctant, to resist dollar depreciation.
WEAK ECONOMIC SIGNALS
According to the “third” estimate real Gross Domestic Product (GDP) increased at an annual rate of 5.6 percent in the fourth quarter of 2009 compared to the “second” estimate of 5.9% released in February. (1)
Real GDP decreased 2.4 percent in 2009 in contrast to an increase of 0.4 percent in 2008. This is “the worst single-year performance since 1946,” Bloomberg said. (2)
Efforts to rebuild depleted inventories contributed 3.79 percent to GDP. (3)
Nouriel Roubini, an economics professor at New York University, noted in an interview following the report on GDP: “The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor.” “I think we are in trouble,” he added. (4)
“Those inventory changes alone cannot sustain growth over an extended period of time,” the New York Times noted, because “as long as the labor market remains weak, consumers — whose purchases make up the bulk of economic output each quarter — will be reluctant to spend money.” (5)
Most of the boost in the third quarter of 2009 was provided by the Government’s program known as “cash for clunkers,” which offered buyers payments of as much as $4,500 to trade in older cars and trucks for new ones. The plan boosted sales by about 700,000 vehicles, according to the Transportation Department. (6)
GDP was also influenced by a significant gain in residential spending activity due to home buyer tax credit. The National Association of Realtors said that nearly half of the jump in home sales in 2009 was directly attributable to the tax credit. (7) President Obama extended the $8000 tax credit for first-time home buyers till the end of April 2010 beyond its original deadline in the end of November 2009. (8) It has also been expanded to include more buyers. (9)
Federal Reserve Board economist Jeremy Nalewaik questions the accuracy of GDP (that tracks spending) with respect to the assessment of economy’s performance as opposed to Gross Domestic Income (GDI). While GDP showed a modest rebound in the third quarter of 2009, GDI gave no evidence of a rebound during this period. “These two measures have shown markedly different business cycle fluctuations over the past twenty-five years, with GDI showing a more-pronounced cycle than GDP.” (10)
A genuine economic recovery would be led by real business activity and increased consumer spending. Much of the boost lately was a product of government intervention into the economy. Therefore, there is no ground to say that the United States are heading towards meaningful and sustainable economic expansion.
Government data indicates that the economy gained 162,000 jobs in March after losing 14,000 jobs in February and adding 14,000 jobs in January, and the unemployment rate held at 9.7 percent. (11) The country has not seen such unemployment levels since the 80s. The data below shows that the labor market generally continues to stagnate.
Most hiring in March occurred due to the 2010 Census (+48,000 jobs), temporary help services (+40,000 jobs), and employment in health care (+27,000 jobs). While manufacturing and construction added 17,000 and 15,000 jobs respectively, financial activities shed 21,000 jobs and employment in the information industry decreased by 12,000.
For some reason the government decided to hire twice as many people in 2010 as were needed for the 2000 Census making some analysts worry that it will just mask the weakness of the employment situation. Most of these jobs will last only for several weeks. "The U.S. economy has lost more than 3 million jobs since President Obama signed the trillion-dollar 'stimulus' into law amid promises it would create jobs 'immediately,' " Michael Steel, the spokesman for House Republican Leader John A. Boehner of Ohio, observes. (12) "Everyone understands that temporary census hiring may inflate the statistics released on Friday, but the American people will rightly continue to ask, 'Where are the jobs?' " (13)
The fundamental weakness of the labor market was highlighted by the significant increase in the number of long-term unemployed (those jobless for 27 weeks and over). The number rose by 414,000 over the month to 6.5 million. It is estimated that it is much worse than in any other recession in entire post-War period. (14)
The broad measure of unemployment, including not only unemployed but part-time and discouraged workers, rose to 16.9% in March. According to Gallup, a statistical consultancy, this measure is actually 20.3%, an increase from the previous month’s 19.8%, meaning that about 30 million Americans don’t work or work less than their desired capacity. (15) Automatic Data Processing Inc. conducted its own payroll survey for March that showed a loss of 23,000 jobs in the private sector. (16)
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