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

By Tuesday, January 8, 2013

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.

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.


About the Author | Browse Michael Lombardi's Articles

Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful investing publications,... Read Full Bio »

  • 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.

Sep. 5, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.62%
10-year U.S. Treasury Yield 2.19%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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