Freedom of Expression
Keith Fitz-Gerald, Chief Investment Strategist is giving his candid appraisal of the behaviour of the government of US and the way they work is not going to resolve the present problem has become obvious from that. By giving false statistical evidence to show that situation is, improving is not going to help them for long. Everything we know about classic economic theory suggests the U.S. economy should be experiencing Zimbabwe-like hyperinflation right now, thanks to the nearly $2.2 trillion the U.S. Federal Reserve has pumped into the system. Out of the counterfeit Dollar, printed by security press.
Classic economic theory says that to stimulate the economy money supply be used and our central bankers seem to agree. That is why they have pumped more than $1 trillion dollars into the economy, engineered countless bailout bonanzas for zombie institutions, put Detroit on life support, and delivered a bunch of financial Band-Aids to the trauma ward – all in a desperate bid to make Americans feel better about the global financial crisis! To their way of thinking, the trillions of dollars have been a success. That is why any meeting of the Group of Eight (G8) nations looks more like a mutual affection society with central bankers anxious to claim credit and backslap each other in congratulations for having avoided the “Great Depression II.” It appears from the way they are behaving that merely creating symptoms of good, economics in the statistics is fair enough to avoid the accountability for the real situation. Governments all over are hands in gloves to help each other in avoiding reporting the truth but that does not help solve the problem anyway. Governments can avoid answering to their people in this manner for some time but the problem is still there and the deterioration that it may cause will not stop. Some day they will have to face the grave situation in any case. This is like taking some pain killer tablet to keep away from immediate pain but the cause of ailing remains. When the pain killer effect is exhausted the pain will again come similarly when these temporary measures are exhausted the economic evil will again raise its head.
However, by taking the Federal balance sheet to more than $2 trillion from $928 billion 2008, they have created a situation that should have resulted in an epic inflationary spike to accompany the 137% increase in liabilities.
Yet that has not quite happened. Core inflation – which denotes consumer prices without food and energy costs – has actually decreased from 2.5% in 2008 to 1.5% presently. Moreover, that has many investors who have heard the siren call of the doom, gloom and boom crowd wondering if they are worried about nothing. The play of false statistical game is working so far and so good! Underlying sickness of economic problems continues to grow slowly and that will again pop up head, some times in the future but who cares!
So what gives? Well, there are four reasons or factors we have not yet seen hyperinflation:
Banks are hoarding cash. Despite having received trillions of dollars in taxpayer-funded bailouts and lived through a litany of shotgun weddings designed to reinvigorate the shattered lending markets, most banks are actually hoarding cash. So instead of lending money to consumers and businesses like those that they are supposed to, banks have used taxpayer dollars to boost their reserves by nearly 20-fold according to the Federal Reserve. The money the bailout was supposed to make available to the system is actually not passing “Go,” but rather being, stopped by the very institutions that are supposed to be lending it out. Three-year average annualized loan growth rates were 9.6% before the crisis; now they are shrinking by 1.8%. Banks in India in Maharashtra did the same thing when taxpayer’s money was used to pay for the farmer’s loan bailouts.
The United States exports inflation to China, which remains very happy to continue to absorb it. What this means is that low priced products from China help keep prices down here. Moreover, this is critical to something that many in the “China-is-manipulating-their-currency” crowd fail to grasp. If China were to un-peg the Yuan and let it rise by the 60% or more it is supposedly, undervalued by, we would see jump in prices here in everything from jeans to tennis shoes, toys, medical equipment, medicines, and anything else we import in bulk from China. Chances are, the shift would not be dollar-for-dollar or even dollar-for-Yuan, but there is no doubt it would be significant. Many economists I have talked to, privately think 25%-35% is probable. Therefore, the next time you hear a “Buy American” extremist, you might want to share this little inconvenient truth.
I am all for supporting our native industry and our own domestic job markets. Nevertheless, in today’s world, “made anywhere” is hard to do and even harder to support. The interconnected nature of businesses and global manufacturing chains, not to mention the payment system, makes that nearly impossible. Granted, perhaps that is part of the problem, but that is a subject for another time. The lessons we learned in the 1930s are clear, and they better be acknowledged – protectionism only makes matters worse, no matter how we feel about it personally. Economics of mass production of consumer products demands “made anywhere” unavoidable.
Consumers are still cutting back. Therefore, the spending that normally helps pull demand through the system is simply not there. People are still cutting back. Indeed, data from the U.S. Department of Commerce and the Federal Reserve Board shows that consumer-spending growth averaged 1.4% a year prior to the crisis and is now shrinking at a rate of 0.7%. What this means is that people have figured out that it is more important to save money than it is to spend it. Considering that consumer, spending makes up 70% or more of the U.S. economy. This is a big change in behaviour of consumers that banishes the last vestiges of the “greed is good” philosophy.
Businesses continue to cut back rather than hire new workers. Therefore, wages and wage inflation figures are lower than they would be if the economy was truly healthy and the stimulus was working. This is especially tough to stomach because it means people are still being marginalized, laid-off and “part-timed” instead of being hired. And that means that most of the earnings growth we’ve seen this season has come from expense reductions rather than top line sales growth – and those are two very different things. However, while this is tough, it has also helped keep inflation lower than it would otherwise be. Prior to the financial meltdown, job growth averaged about 1% a year over the last three years whereas now it is falling by 4.2%.
Danger that haunts is; any one of these reasons or factors could change at any time. In addition, that means investors who are relying on the Fed’s version that everything is okay and that the government is managing inflation may be in for a rude shock. The healthy and truly wholesome way of improving the economic situation is apart; US government is trading a wrong method to create only symptoms of good economic conditions and not actually good economic condition.
The only thing the US government is doing is managing to manipulate the data, and even that, not very well!
I present this evaluation by this American economic critic to show tremendous similarity in the working of our finance ministry and that of USA. Our newspapers write a lot of false news about employment created by industries while in actuality industries are shutting down. We having 70% population in below poverty line and our government continuously talks of heading for superpower and the sham news papers not complaining about it. As a government, we have utterly failed; yet claim of having a successful democracy! How long we are going to fool our selves the way, in this way.
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