The grim reality is that the U.S. economy will not be improving anytime soon. The statistics don’t lie—there is no economic growth, but there is growing evidence the U.S. is experiencing an economic slowdown.
One important indicator of economic growth includes the standard of living. As I have written recently, the American middle class is in jeopardy of disappearing, just like it has in most of Europe.
In June of this year, there were 46.7 million people in the U.S. on some form of food stamps. (Source: U.S. Department of Agriculture, August 30, 2012.) The number of people using food stamps has increased 3.3% over the course of the year. This means that almost 15% of the U.S. population is on food stamps!
Why are there so many Americans on food stamps? It’s simple. The unemployment rate is too high for economic growth to happen, food prices are going up, and millions of people can’t afford to pay their expenses. How can we experience economic growth when so many people can’t afford to fill the most basic needs?
Another reason for soaring food stamp usage: the majority of jobs created since the credit crisis hit are mainly in low-wage sectors—retail, food prep, laborers, freight workers, waiters and waitresses, office clerks, and customer service representatives. These jobs do not create economic growth; they just put food on the table.
There are still approximately 10 million jobs missing from the economy. (Source: NELP, August 31, 2012). What we are witnessing in the U.S. is a continued economic slowdown, as real economic growth would have resulted in across-the-board job creation.
While I will not sway into the current Republican or Democratic fight for the White House, last night I saw what was probably the best speech ever given in the career of former President Bill Clinton.
Speaking at the Democratic National Convention, from the point of view of an “economist’s mind,” three things Clinton said really stuck in my mind as reasons why economic growth eludes America.
Clinton said that, while in Office, President Obama has created over 4.5 million jobs. Unfortunately, the problem with the majority of these jobs is that they are in the low-wage sectors I mentioned above—it is work that helps Americans get by. Economic growth is achieved when jobs put money in the pockets of middle class people who go out and then spend, spurring economic growth.
Clinton went on to say the Republicans (really former President George Bush) doubled the national debt in the eight years after Bush left office. He failed to mention that President Obama has increased the national debt more during his term in office than any other sitting President has ever increased it: by $6.0 trillion and counting. The more debt the government puts on itself, the harder it is to get economic growth going. History has proven this.
Finally, during his speech, Clinton said the current government has done a great job at keeping interest rates low. At this point (and many will not agree with me), I think interest rates being low for so long have hurt the economy.
The millions of people who worked hard all their lives to save money for retirement are not getting a high enough return on their savings to live. Hence, they are entering the workforce (again) at a very late stage in their life, taking jobs away from middle-aged people looking for work and failing to create economic growth.
For the record, I’m not saying Mitt Romney can create better jobs, reduce the debt without hurting the economy, or move interest rates higher without collapsing economic growth. We really don’t know what will happen.
But I do know this…
The number of people on food stamps will increase in the months ahead. The economic data don’t lie…there is no way the U.S. is in any stage of economic growth when all the signs point to an economic slowdown.
As I have been writing in these pages; Spain cannot rescue its banks by itself, as the Spanish government is out of money. The credit crisis in Spain is worsening and it the country desperately needs more bailout money from its eurozone peers. Lest we forget, it was only in June when Spain accepted a 100-billion-euro loan from the other eurozone countries.
Spain has come a long way…from initially refusing to accept any eurozone bailout funds to going door to door with its hands out. The Spanish government believed that it could access the credit market and be able avert the credit crisis on its own—that did not work very well.
In order to get out of the mess created by the real estate collapse in 2008, the Spanish government approved the creation of the “bad bank.” Essentially, the bad bank buys all the bad loans, and foreclosed properties from the Spanish banks with the money received from eurozone partners. The estimation was that the bad bank would only last 10 to 15 years while it liquidated the toxic assets. (Source: The Globe and Mail, August 31, 2012.)
Sounds like a great plan right? Well, it is very questionable at very best.
This same bad bank concept was used in Ireland to avert a deeper credit crisis; not surprisingly, this did not work as planned. Ireland’s Asset Management Agency (NAMA) paid 30 billion euros to its banks for assets that were worth 74 billion euros—the banks ended up writing off 44 billion euros—leading to more rescue. (Source: Toronto Star, August 31, 2012.)
There have been five financial sector reforms in Spain alone in the last three years, none of which have helped. The uncertainty is still present in Spain and the eurozone economies are still in trouble.
The eurozone credit crisis has been escalating from one country to another. It began with Ireland, Portugal, and then Greece, followed by Spain. Italy will most likely be next thanks to its rising debt and worsening economic conditions.
What does this mean for us here in the U.S.? It means trouble! Industrialized countries in the West cannot escape the ripple effects of the eurozone credit crisis. Add the slowdown in China into the mix and we are looking at a worldwide economic slowdown.
Where the Market Stands; Where it’s Headed:
Only two full trading days into September for stocks and so far we’re off to a bad start. But where my readers should be doing well is with their gold stocks. Gold bullion has opened this morning at its highest level since March.
I have been driving home this simple message on these pages for the majority of 2012: junior and senior gold-producing stocks are trading at historically low valuations and offer a great opportunity. I stand behind this opinion today.
On the “debt clock” at our sister publication Investment Contrarians’ web site (www.investmentcontrarians.com), I saw that the U.S. national debt surpassed $16.0 trillion yesterday. It’s amazing looking at this clock and seeing how one million in additional national debt is created every few seconds.
A bear market rally in stocks that started in March of 2009 is nearing its end.
What He Said:
“Any way you look at it; the U.S. housing market is in for a real beating. As I have written before, in the late 1920s, the real estate market crashed first, the stock market second, and the economy third. This is the exact sequence of events I believe we are witnessing 80 years later.” Michael Lombardi in Profit Confidential, August 27, 2007. A dire prediction that came true.