Just how bad is the U.S. economy?
Unfortunately, nothing has really changed in the U.S. economy since the credit crisis hit in 2008 except for a record increase in government debt, a record increase in the money supply, and years of artificially low interest rates. There have been no real structural changes to the U.S. economy.
But putting the economic issues aside, what has changed is the confidence of people in the government and the U.S. economy. Why would I say that?
Americans from more than 40 states have filed a petition with the U.S. government seeking to secede from the union. Citizens in Texas collected 100,000 signatures, and Louisiana, Florida, North Carolina, Alabama, Georgia, and Tennessee combined have collected 30,000 signatures. (Source: Reuters, November 14, 2012.)
If this wasn’t enough, in September, U.S. residents increased their holdings of long-term foreign securities, with net purchases of $14.6 billion. Similarly, over time, their appetite for long-term U.S. domestic securities has gone down significantly.
In 2010, U.S. residents purchased $908.3 billion worth of domestic securities. In 2011, they purchased $493.4 billion—a decrease of almost 46% from the previous year. (Source: U.S. Department of the Treasury, November 16, 2012.)
The financial crisis in the U.S. economy devastated pockets of average Americans, but the government chose to bail out Wall Street and not the common man. Average Americans were the ones who lost their jobs and saw their wealth and wages decline.
Will these 40 states be able to walk away from the debt-infested U.S. economy? I doubt it very much. We are simply dealing with pockets of very upset citizens. People in the U.S. have suffered long enough. The U.S. economy is nowhere close to the levels seen before the financial crisis started. All the recovery talk—it’s nothing but a speaking point for politicians.
Unfortunately, my biggest fear is that, four years out, we will be in the same situation as today. The gap between the rich and poor in this country will only get wider…more and more people will become dependent on government handouts…we will get closer and closer to a socialist system, in which the government supports its citizens financially with different kinds of handouts.
How can economic growth be achieved under such a scenario? Here’s a better one for you: how can the stock market rise in such an economy?
Where the Market Stands; Where It’s Headed:
We are near the end of a multi-year bear market rally. Phase II of the bear market (often called the bounce) is coming to an 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.