The Last Bear

The news have been plastered with the ‘economic recovery hype’ as they try to sell the story to the public in an attempt to increase confidence in a desperate attempt to get shoppers to spend more money that they do not have and keep the bubble alive. The opinions on the recovery topic vary, but facts remain facts.

Here are five reasons why there will not be an economic recovery:

1. High Unemployment. The most obvious reason. Consumers do not have a job and with real unemployment over 22% the majority is still in recession. Even those who are employed feel as the recession has not ended, because in reality it simply has not ended. The definition used to classify a recession as well as the data viewed are outdated and do not give a clear insight into the true stage of the economy. You know the saying: ‘If it looks like a duck, quacks like a duck, looks like a duck, it must be a duck.’ The recession is in full swing, without improvement. As a matter of fact the recession will get worse next year.

2. Absence of the consumer. Consumers will not be able to support the economy. Consumer spending accounts for almost 70% of economic activity and without the consumer the economy will not be able to launch a sustained recover. Recent consumer spending data should be ignored as it was heavily influenced by government incentives together with huge discounts. Traffic at stores was decent, but traffic did not result in sales the way retailers and the economy required them. Retailers must offer heavy discounts, but that cuts into their profits which may be followed by more job cuts. Either way, it is not a good picture to look at.

3. Inflation. The Federal Reserve has ensured that a period of hyper-inflation is around the corner. They have thought and were hailed for their monetary policy, but the verdict is still out there and will be negative. Right now inflation seems contained but inflationary pressures are cramped in the economic pipeline and once inflation surfaces, there is no quick way to get it under control. The economy will be stagnant at best while inflation will spiral out of control.

4. Twin deficits. The trade deficit has narrowed on a monthly base due to the severe recession, but it remains a deficit. On the other hand, the budget deficit has more than made up for the decrease in the trade deficit and continues to grow by more than one trillion dollars each year due to counter-productive policy making. Soon foreign demand for U.S. assets will fade and will not support the economy. The first BRIC meeting already took a huge step into that direction which will have big negative impacts on the economy.

5. U.S. Dollar deterioration. The currency is worthless. As a matter of fact the dollar is not even worth the paper that it is printed on. Some may hail that as a good thing temporarily, but commodities are priced in U.S. Dollars right now. The U.S. Dollar and commodity prices enjoy an inverse relationship which means when the dollar drops, commodity prices will increase which translates to higher costs from gas to food. On top of that, it also fuels inflation.

The above are just five reasons the economy will not recover. The housing market continues to trend lower once again and there will be a second wave from credit defaults. Commercial real estate is under water and the credit card crisis has yet to unfold. Healthcare is far from being fixed while Social Security and Medicare are under water as well at the time when Baby Boomers will retire.

The truth hurts sometimes, but it is better to know the truth than to chase an illusion.

Photo Credit: The picture in the top left corner was created by jscreationzs and downloaded for free use at freedigitalphotos.net.