In recent months, GDP numbers have rebounded - primarily as a result of record low interest rates reliquifying the credit market and government stimulus jolting consumer spending. Although the "positive growth" has delighted Obama's economic brain trust, it has done little to boost the fortunes of Main Street. As I have said many times, GDP largely measures spending, and spending is not growth.
Last Friday we received the latest indication that the real economy is not recovering in the slightest. The Labor Department reported that non-farm payrolls increased by 431,000 jobs in May. In a press statement, the President himself crowed at the news, noting that the official employment rate fell to 9.7% from 9.9%. However, just inches below the headline, red flags were everywhere. Only 41,000 of those jobs were generated in the private sector - far below the median forecast of 180,000. Even more troubling was the fact that the Census Bureau alone accounted for 411,000 new jobs, which were almost exclusively temporary positions.
Rather than a recovery, the jobs data seems to indicate that we are still mired in the first economic depression since the 1930s. Back in 1931, two full years after the Crash of 1929, there were still very few people who thought that the recession then underway would one day be called the Great Depression.
Increased spending, financed by unprecedented borrowing, will prove to be just as temporary as a US census job (unless, in the name of stimulus, Obama decides to make "people counting" a permanent function of the US government.). When the bills come due, the next leg down will be even more severe than the last.
The swelling ranks of the government payroll, and the shrinking number of private taxpayers footing the bill, will guarantee larger deficits and a weaker economy for years to come. In addition, the artificial spending has prevented a much-needed restructuring from taking place, leaving our economy far less efficient than before the crisis began. In other words, we have dug ourselves into a much deeper hole while failing utterly to build any means to climb out.
One reason that we have thus far been spared the full wrath of Washington's poor decisions is that we are still benefiting from problems abroad, particularly in the eurozone. As sovereign debt issues have temporarily caused a flight to the dollar, our economy has benefited from lower interest rates and restrained consumer prices.
However, EU member-states have shown some willingness to confront their problems by cutting government spending - correctly ignoring US government suggestions that they do the opposite.
Just today, newly elected UK Prime Minister David Cameron prepared his constituents for austerity. Citing a budget deficit that is currently running at 11 percent of GDP, Cameron indicated that government spending would have to fall in order to maintain solvency and a high standard of living.
Cameron went on to say, "Greece stands as a warning of what happens to countries that lose their credibility, or whose governments pretend that difficult decisions can somehow be avoided." This type of realistic sentiment is completely absent in our current leadership in Washington, even though the US deficit is 9.9 percent of GDP and mounting. Meanwhile, the tough decisions being made by European governments will start to rebuild investor confidence in the euro.
Once the euro finally stabilizes against the dollar, I expect commodity prices to resume their rise, especially oil. Normally, the uncertainty created by the disastrous oil spill in the gulf, and the resulting moratorium on deep-water drilling, would have sent crude oil prices skyrocketing. However, fears of a global slowdown, euro weakness, and general risk aversion have held prices in check. As Asia continues its growth and Europe regains its footing, I expect a delayed surge in oil prices, which will put yet another obstacle on the road to US recovery.
Our last remaining leg of support has been the activity of Asian central banks, who have continued in their herculean efforts to prop up the dollar and bail out Americans with low interest rates and cheap imports. However, when sovereign credit risk eventually rears its head in America, look for Asian policymakers to finally wise up. Once that prop is removed, there will be no questions about the gravity of our situation - and little dispute that it amounts to a depression.
The real danger will be if we follow our own foolish advice that Europe appears to have rejected. Treasury Secretary Timothy Geithner has bluntly suggested that European governments should print and spend money in order to keep their economies out of recession. In reality, cutting government spending is a far better stimulus. Maintaining lavish budgets through the use of the printing press will only result in disaster. Not only will such action fail to avert a double-dip recession, but it will practically ensure an inflationary depression.
As I have said before, we can't simultaneously grow the economy and grow government. The latest jobs report shows that we are just growing government. If that trend doesn't soon reverse, investors will start betting on the collapse of the dollarzone.
Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.
- Video: Free Market Capitalism
- Gold: The Rally Will Gather Momentum As The Year Progresses
- U.S. Dollar: The World Has A Lot More Confidence Than They Should
- Video: Confiscating Excess Wealth
- Dow Jones Industrials & Gold Parity
- Video: The Federal Reserve Will Not End QE
- What Is Full Employment To Janet Yellen?
- Momentum Stocks Are Having Trouble
- Quantitative Easing (QE) Is An Euphemism For Inflation
- China: No Evidence That Demand For Gold Will Slow
- ► 2013 (395)
- ► 2012 (438)
- ► 2011 (308)
- I Own A Lot Of Mining Stocks
- Investing In China
- What Rising Gold Prices Are Telling Us Is That The...
- I Hope That We Go Back To A Gold Standard
- Gold And Mining Stocks
- How To Invest In Gold
- Gold And Gold Stocks
- Gold It`s An Absolute Winner
- Bearish On US Treasuries
- China Will Be Able To Reap The Rewards Of Their Ow...
- CNBC Video: Stronger Yuan Game Changer For Investo...
- Greenspan On The Fiscal Time Bomb
- Obama`s Energy Bill, Congress: A Huge Loss For The...
- Do We Have A Bright Future?
- Obama`s Reaction To The Oil Spill
- Stock Market Update: Markets Are Going Higher
- Use Bernanke As A Contrarian Indicator
- Oil Prices Are Going Much Higher
- A Surge In Oil Prices Will Be An Obstacle On The U...
- Gold Can Reach 5,000 To 10,000 In The Next 5 to 10...
- Oil Prices Should be Going Through The Roof
- If The IMF Decides To Bail Out Greece The Monetary...
- Washington Wants To Use Our Tax Dollars To Bail Ou...
- Signs Of An Inflationary Depression?
- I Will Treat Taxpayer Dollars Like They Are My Own...
- There Is No Recovery
- US Markets Update
- How To Buy Gold
- The Wrong Way To Buy Gold (Video)
- People Are Afraid Of The Debasement Of All The Cur...
- ▼ June (30)
- ► 2009 (280)