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U.S. Economy Past the Point of No Return?

Tuesday, January 8th, 2013
By for Profit Confidential

U.S. Economy Past the Point of No ReturnWith 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.

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If this continues (increasing national debt, more printing), the buying power of Americans will decline. Just look at the chart below:

 

U S Dollar Index Chart

 

 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.

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  • Victor

    Also, the higher the debt gets, the higher interest payments are and where does that money ultimately come from? That's right, your tax dollars. So what the average American gets back from their tax dollars gets less and less all the time.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles