U.S. Economy Past the Point of No Return?
With the fiscal cliff averted, is the U.S. economy really back on track? Sadly, my answer is a resounding “no.” On the contrary, the U.S. economy is on a path of destruction, consisting of anemic economic growth, and dismal future expectations.
During an interview with CNBC, Congressman Ron Paul explained the situation of the U.S. economy perfectly. He said, “I think we have passed the point of no return, where we can get our house in order.” (Source: CNBC, “Rep. Ron Paul on ‘Fiscal Cliff’: Too Much Bipartisanship on Spending,” December 28, 2012.)
What’s ahead for the U.S. economy? You can expect more national debt, the demise of the greenback, and more scrutiny on the buying power of Americans.
Currently, the U.S. national debt stands at $16.4 trillion. (Source: www.investmentcontrarians.com). Looking at our national debt as a percentage of gross domestic product (GDP), in the third quarter of 2012, it was 101.6%. (Source: Federal Reserve Bank of St. Louis, Last Accessed January 3, 2012.)
For the U.S. government fiscal year 2012 ending September 30, the U.S. Treasury Department reported a budget deficit of $1.1 trillion, marking the fourth year of a deficit over $1.0 trillion. As a percentage of GDP, the budget deficit in 2012 stood at seven percent. (Source: U.S. Department of the Treasury, October 12, 2012.)
Budget deficits of more than three percent of the GDP are considered unsustainable by economists. (Source: Reuters, October 12, 2012.)
The ultimate result of these budget deficits and borrowings will be the U.S. dollar’s downfall. According to JPMorgan Chase & Co., 90% of all the bonds issued by the U.S. government are being bought by the Federal Reserve. (Source: Bloomberg, December 3, 2012.) This means that, as the U.S. government sells the bond, the Federal Reserve prints the money, and buys the bonds with it.
If this continues (increasing national debt, more printing), the buying power of Americans will decline. Just look at the chart below:
Chart courtesy of www.StockCharts.com
The U.S. dollar has been in a decline compared to other major currencies. If it continues its fall, goods will become more expensive in the U.S.
Government spending will eventually hurt your pocket. It will cause the national debt in the U.S. economy to increase and the dollar to fall even further. U.S. creditors will realize how dangerous this is and they will certainly react to it.