U.S. Economy Fundamentally Tormented; No Amount of Money Printing Can Fix It
Michael Lombardi: The U.S. economy is fundamentally tormented; no amount of money printing can fix it. The Federal Reserve continues to print $85.0 billion a month in new money, and the government continues to spread hopes of economic growth. Sadly, there isn’t any. In fact, Americans are struggling.
In a period of economic growth, the general standard of living is supposed to improve as people get jobs, spend money, and live in prosperity. As the economy improves, businesses spend, hire more staff, produce more products, and are able to see rising profits. In the U.S. economy today, we have the complete opposite.
A record amount of people in the U.S. economy are on food stamps. In January of this year, there were 47.8 million Americans on some form of food stamps. This number is eight percent higher than it was in January 2011, when 44.2 million people were using food stamps. (Source: United States Department of Agriculture, April 5, 2013.) Of the entire U.S. population, 15.1% are using some form of food stamps.
Why are so many Americans in the U.S. economy on food stamps? Millions of Americans are unemployed, and those lucky enough to find a job are working in low wage-paying sectors. And real wages are declining. This is all contrary to economic growth.
As for businesses in the U.S. economy, in March, factory output in the U.S. economy declined 0.1%—the second decline in the first three months of 2013. Furthermore, the capacity utilization for manufacturing—a measure of what manufacturers can produce and what they’re actually producing—declined by 0.2% in March. (Source: Board of Governors of the Federal Reserve System, April 16, 2013.) Companies involved in manufacturing in the U.S. economy are operating nowhere near their optimal levels.
But have no fear, dear reader, the stock market and stock advisors are very optimistic. In fact, in spite of all the negative factors, it’s almost as if the stock market and the overly bullish stock advisors see no misery ahead at all.
But troubles in the global economy are escalating quickly. Yes, the eurozone and Japan are begging for economic growth. But now others, such as China, are following their lead.
It would not surprise me to see the U.S. economy register negative growth in the first quarter of 2013. Printing money and throwing it at the economic problems at hand can only work for so long—actually, the concept has stopped working.
Michael’s Personal Notes:
From last Friday to Monday of this week, gold bullion prices fell from about $1,550 an ounce to as low as $1,350—a decline of more than $200.00 dollars, or almost 13%.
The financial media tells us the reasons for the sell-off are many; some are saying gold bullion prices declined because Cyprus was asked to sell its gold to pay its bills, while others are saying the bull run in gold bullion is over altogether.
Just like other commodities, there are human and psychological emotions present when it comes to gold bullion trading. The metal isn’t immune to panic selling. But what still holds true, regardless of the rush to sell, is that demand for gold bullion is still very present; the fundamentals haven’t changed.
Central banks are buying with two hands. As I have been harping on about in these pages, central banks will continue to be major buyers. Central banks from countries like Russia are adding record amounts of gold bullion to their reserves. As a whole, central banks purchased the largest amount of gold in 2012 since 1964. But even with all this gold buying, countries like China, India, and Japan still don’t hold as much gold bullion as the United States, Germany, France, and Italy.
Consumer investment demand for gold is robust as well. Sales of American Eagle gold bullion coins from the U.S. Mint are booming. In April 2012, the U.S. Mint sold 20,000 ounces of gold bullion in coins. So far in April of this year, the amount of gold bullion coins sold has reached 50,500 ounces—and the month hasn’t even ended yet! (Source: United States Mint web site, last accessed April 16, 2013.)
Meanwhile, central banks around the world are still printing more paper money. To see this in action, we don’t really have to go far. The Federal Reserve is creating $85.0 billion a month in new paper money and is using the newly created money to purchase government bonds and mortgage-backed securities (MBS). As a result of all this money printing, inflationary pressures are building up. The more central banks print, the brighter the future will be for gold bullion.
Above all, it seems bears who are fleeing gold bullion are forgetting the most important reason for its existence. Gold stores value, unlike the fiat currencies printed by central banks. Look at what happened to the value of the U.S. dollar. A $1.00 item bought in 1970 would cost you $5.98 today. (Source: Bureau of Labor Statistics web site, last accessed April 16, 2013.)
Dear reader, the price decline hasn’t changed my opinion toward gold bullion prices. I am still bullish and continue to believe the yellow metal has a great future. The pullback in gold bullion prices is normal after such a long bull market, and I am seeing this as a buying opportunity.
Where the Market Stands; Where It’s Headed:
I believe the stock market is overvalued and overbought. The stock market is out of sync with the economy. The market is putting in a top that could last for years to come.
What He Said:
“As a reader, you’re aware I’m not a Greenspan fan. In the years that lie ahead, I believe we (and our children) may pay dearly for the debt bubble Greenspan created during his tenure as head of the U.S. Federal Reserve.” Michael Lombardi in Profit Confidential, March 20, 2006. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.
Related: Dow Jones Industrial Average (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX)