The Economic Non-Recovery

I have been very consistent in saying that the programs enacted by our government would not solve our economic ills. For awhile, there was actually a debate as to the efficacy of the government’s programs; now there is none. It is becoming increasingly difficult to find permabulls on the economy because quite frankly, most have gone into hiding. They know they were wrong. Where is the 6.8% unemployment rate we were supposed to be enjoying by now due to the stimulus plan? Where is the $1.5 in GDP growth for every $1 we spend on the economy?

Of course the current administration says things would be worse if they didn’t do anything. Good one- go try that argument on a 3rd grader because I’m not buying it. Take a look at Japan and see what never-ending government intervention has done for that economy. The Nikkei is down about 75% from its peak from over 20 years ago. Read that again, it’s not a typo. Low interest rates, constant bailouts, and non-stop intervention has done nothing to create an economic boom in Japan. The same medicine is doing nothing to cure our economy.

As an aside, the recent announcement to release our strategic oil reserves strikes me as a very desperate move. Apparently this is in response to oil shocks coming from the conflict in Libya. Ok, so I’m assuming there were no supply shocks associated with us invading Iraq? Inflation is a growing threat and the administration will do whatever it can, whether it be market manipulation or the manipulation of CPI data, to veil this from the American public. Just look at the government’s actions for they will show what their fears are.

What we face now is a crisis in confidence that can potentially get very serious. Confidence is so critical because perception alone is enough to drive markets. With growing discontent in the American population should come higher rates of inflation. The reason a stock market crash is off the table is because it implies people will be rushing to buy dollars, thereby driving up its value and decreasing the value of everything else relative to it. The deflationist arguments make sense to an extent until you think of it from that perspective.

Part of the reason people dislike gold is because its rise indicates something is wrong. I have very little doubt that confidence is going to fall precipitously in the near future. Right up until last year, the average American still carried hope that we could right this ship. Oh how quickly those hopes have disappeared. It was the rare person that refused to go with the crowd in believing a snap-back economic recovery would come in 2009 ; now it is the rare person that predicts a very serious currency and debt crisis that goes beyond a mere double dip recession. The risk right now isn’t for some kind of slowdown in GDP growth, it is for huge shocks in the bond market. It is very, very, very near the time to sell everything government.

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  • Farms

    The latest stimulus program, drawing down the strategic oil reserves.  How clever.  What will they think of next?  And I think people are still riding the “hope train,” thinking things will get better.  I’m in California.  Look at our State government acting as though they’re just a few fixes away from nirvana…and the public is buying this snake oil. 

    • http://www.expectedreturnsblog.com Moses

      I guess you can view the release of strategic oil reserves as a backdoor stimulus program. As for California, that state is just one big mess. In the next recession, all these state balance sheets are going to implode. 

  • Chrispat707

    What will we all do if the government decides to follow history and confiscate gold “to protect us” from the” speculators”…. to save  us the day?

    • http://www.expectedreturnsblog.com Moses

      Government is always here to help you, don’t worry.

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