Myth of the Day

The economic recovery that the media and talking heads have been bantering around does not exist and is just a myth. A manipulated stock market distorted by recent economic policy hides and mask the real truth, in many ways it is ground zero in the war to convince us all is well. The American people and Main Street will tell you they are far from convinced that it is smooth sailing ahead. Huge weakness in the economy was confirmed recently by Ben Bernanke and the Federal Reserve when they failed to cut back QE by even the slightest amount. Fact is if QE or the massive government deficit spending that props up our economy is removed it will fold like a cheap umbrella.

Recent changes in how the GDP is figured , which boosted growth thus reducing the debt to growth ratio, and attempts to spin poor numbers regarding employment have been met with skepticism. Auto and new home sales have recovered a bit from the levels hit during the crises mainly as a result of QE and massive government deficits coupled with low interest rates that make both mush less expensive to finance, but we are still in an economic morass. Poor job creation and stagnate wages have left millions in a protracted state of financial weakness. We are not in recovery we are dead n the water.

The American government has been running one and a half trillion dollar deficits the last several years. This represents a staggering $4,500 per person and $15,300 per family in America each year, these huge deficits add up very fast! Sadly, this is what is propelling the economy forward, and it is not sustainable. Massively compounding the problem is the realization that many people such as infants, children, the disabled, and the unemployed could not repay their share of this debt if their life depended on it, this transfers the burden to the remainder of society.

Those in power have cast a bum rap upon austerity as they continue to steer us towards what they hope is a controllable inflation ramp. It seems the goal is to move inflation up enough that it is still acceptable but at the same time give people the illusion of economic growth. This would support pension funds and others in the stock markets thus fostering the golden “wealth effect” that encourages people to borrow money and go out and spend. If  these funds fall in value it will bring into question the whole economic system and a collapse that will bring down the pension system.

The head of the International Monetary Fund, Christine Lagarde, has warned that the latest chink in our economic armor, a US default, could tip the world into recession. In a US television interview she said a default would result in “massive disruption the world over”. She went on to say “If there is that degree of disruption, that lack of certainty, that lack of trust in the US signature, it would mean massive disruption the world over and we would be at risk of tipping yet again into recession.” Her message, spend now and after things get better worry about the debt.

President Obama said, “It wouldn’t be wise, as some suggest, to just kick the debt ceiling can down the road for a couple of months, and flirt with a first-ever intentional default right in the middle of the holiday shopping season.”   The political gridlock concerning government spending that has shutdown the US government will shave 0.25% off economic growth each week it continues is the estimate of US Treasury Secretary Jack Lew. Growth is already expected to be sluggish this quarter. The US Treasury has been using what it calls extraordinary measures to keep paying the bills, but those measures hit a wall on October 17.

Every week the Treasury has to refinance 100 billion dollars of debt in the form of US government bonds known as treasuries. The US also has to pay interest on its huge debt burden. An inability to pay that interest, or pay back debt if required, would put the US into default. On Saturday, Jamie Dimon, head of  JP Morgan said the possible repercussions did not bear thinking about. “You don’t want to know (what would happen),” he said. “It would ripple through the world economy in a way that you couldn’t possibly understand.”