Monday, April 5, 2010

Economic Recovery: Fact or Fiction?

The government likes to put on a magic show, setting the stage to cast their illusions. While Obamaland makes grand gestures hiding behind the props and pretending to pull rabbits out of hats, the facts themselves tell quite a different story, as Lady America is actually getting sliced in half.

The DOW closed just below 11000 today and the government declares that the recovery has taken hold.
"The government's report Friday that the economy posted its biggest job gain in three years in March raised expectations that a recovery is taking hold. Reports Monday of strong improvements in demand at services businesses and in the housing market added to an optimistic mood among traders."

Before we break out the champagne, let's take a peek backstage at what is really going on behind the curtains.

Regarding the housing crisis, it seems today's report is in conflict with a move the federal reserve made barely two weeks ago, which is expected to hurt the economy.
"The Federal Reserve’s decision to allow mortgage-debt purchase programs to end this month could drive up home-loan rates and worsen the housing crisis"

Yahoo finance, had a great article noting 7 economic points that aren't what they seem.
In summary:
1. U.S. consumer spending - actually doing quite poorly
2. Home prices - raw data revealed a 0.2% dip — the fourth decline in a row
3. Consumer confidence - the reality: in recessions, this confidence index averages out to be 71.0, and in expansions, it averages 102.0.
4. The ISM index - the orders-to-inventories ratio slid to a level suggesting that we could be in for a big pullback in the next few months.
5. Stock buybacks - companies are buying back their stock to avoid the dilutive effects of expiring stock options
6. Government Bailouts - the bond market may no longer be in a cooperating
mood to finance all this largesse.
7. BLS vs. ADP payroll report - ADP showed private payrolls fell 23k; BLS claims that this metric was up 123k; ADP does not have any “plug” factors; wages are now deflating

In reference to number 6, Moody's has warned that the US is in danger of losing it's AAA status for bonds.
"In the U.S., the budget deficit this year is projected to be just under 10 percent of the economy, meaning that the Treasury has to sell more and more bills to fund the shortfall."

In reference to number 7, with the real unemployment for March 2010 at 26.4 million or 22%, there really isn't any sign of a true economic recovery.

Now that we've looked behind the curtains, what did we learn? The market may have increased but it is a false indicator, as we have more debt, are losing our ability to borrow, and there is still high unemployment. In reality, there is no concrete evidence of an economic recovery whatsoever and instead we will be left off worser for the wear.

The Obama administration's spending spree will leave the nation with enormous debt and the ability to collect higher taxes will plateau as citizens are tapped out. If the US is downgraded, this will put the nation in a difficult position as investors will no longer want to buy US bonds. Since there is only so much money that can be confiscated from the taxpayers, the economic well will eventually run dry. We won't be able to borrow any more, there will be no money to pay off these enormous debts as they become due, and Obama will have succeeded in his goal to make the nation insolvent.

Try not to blink. A few swipes of the wand, and poof! The magic show is over. Lady America is out on the street and half of what she used to be.

Unfortunately, this is not an illusion. We all know that out of a population of 300 million, it was only 69 million voters who voted for Obama that bought us a ticket to this magic show. As some admit buyer's remorse, it seems that when they cast their vote, little did they know about the tricks that Obama held up his sleeves. Some have now opened their eyes and started to watch. Now it is time to storm the stage, cancel the show, and boot these players out the door.

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