Thursday, October 29, 2009

The End of the Recession

Mainstream articles like this one are announcing the end of the recession due to a rise in Gross Domestic Product (GDP). This the folly of modern mainstream economics and why it fails to predict much of anything when it comes to investing or the actual economy. You see, government spending is included in the GDP report.

So, if we put our children and grandchildren on the hook by borrowing even more money at the federal level that we don't have and then spend it on a mountain of consumer goods, our economy will continue to grow and we will never have to have a recession again because the GDP will continue to rise. In fact, if we just hand citizen in this country $100,000, we could have a GDP report of economists' dreams. Paul Krugman might even be happy about the levels of stimulus. Of course, the borrowing would have to accelerate every quarter in perpetuity until our currency was destroyed and our lines of credit cut off.

You cannot borrow your way out of a debt crisis. Yes, you may be able to destroy the value of the currency by being more reckless than a drunken sailor, but you cannot create prosperity by borrowing from Dick to pay Harry and then borrowing from Jane to pay Dick, etc. We are creating another tower of debt in the public sector to replace the collapsing tower of debt in the private sector. The non-federal, for-profit federal reserve corporation is happy to have a new debtor lined up and could care less if the debtor is private or public, as long as the bankstaz make their money.

This path of public borrowing has never worked in history and isn't going to work now. These things are not helpful to speculators, where timing is important. Those "in it for the long haul" need to recognize, however, that the general stock and real estate markets are not where you want to be for the next 5 years (10 years?). A few companies that are closer to the government money spigots (e.g., Goldmun Suchs) may do better than others, but companies are suffering and will continue to suffer because the "real" economy is in shambles right now.

Over the longer term (i.e. years, not months), the stock and real estate markets will continue to reflect this reality. The paperbugs don't want to hear it, but a shiny piece of metal called Gold will continue to outperform the stock market for some time to come (as it has for the past decade). Until the Dow to Gold ratio hits 2 (and possibly below 1 this cycle), general stocks are to be avoided other than as a trade. Gold is not about to collapse, but stocks are. This is the big picture that continues to expose the folly of apparatchiks and their court economists.

For when it is all said and done, the real economy is going to continue to contract and all that will be left at the end is mountains of unnecessary public debt for the next generation. The "stimulus" will help a few in the short term at the expense of the country's economic long-term future. At least we know the for-profit, non-federal, private federal reserve corporation will have enough interest payments coming in from the public kitty to keep their counterfeiting franchise going for another few years.

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