The hidden truth about the US economic recovery

US_economic_recovery
Economic recovery

Probably, you may have heard from the media that since the beginning of this year, there is a progressive economic recovery in the USA. The stock market is going up, consumer confidence is growing and the profits for most of the companies have exceeded their expectations. Is this recovery real or the government creates the illusion of prosperity at the expense of future generations?

There is enough evidence to suggest that the economy is artificially supported by monetary and fiscal policies that are not sustainable. These policies distort the economic data about achievements, published regularly by the government, such as unemployment and GDP.

Unemployment

Statistics of the unemployment cannot submit a realistic picture of the true condition of available jobs in America. The unemployment rate is calculated by dividing the number of unemployed workers from the total labor force. Unemployed are defined as those who have no work, looking for it and available for work. Those who have stopped looking for work or for other reasons are unable to work, are not included in the statistics, which artificially lower the unemployment rate by about 7%. Another reason for the drop of the level down is because the jobs are paid with deficit spending. The deficit for the fiscal 2011 was $ 1.3 trillion, but nothing has been done by the federal government to reduce the cost, in order to control future deficits. The money were flowing into the economy, paying for jobs, an event that would not have happened if the budget was balanced.

Suppose that the number of jobs that are paid by the financial deficit in 2011 can be calculated by dividing the total deficit with the average expense per worker. The annual cost per worker of $ 160 000 include salary, benefits, office space, materials and supplies. Divide the deficit of $ 1.3 trillion to $ 160 000, then the result will be that the deficit pay about 8 million jobs. If these jobs had been added to the unemployment, the rate would be increased by another 5%. As we sum this up, the current unemployment rate of 8.3% is underestimated by at least 12%. The expected total amount of level 21% is higher than the average 18%, during the last decade of the Great Depression.

Gross domestic product

GDP is a measure of economic productivity and includes government spending. GDP for fiscal 2011 is about $ 15 trillion. Government expenditures include $ 1.3 trillion of this amount, so the real GDP is actually 13.7 trillion. This is a reduction of 9% from the published value, a decrease that could be classified as level of depression. Thus, the removal of government spending creates a different picture of the economy health.

Three-quarters of GDP are now a function of consumer spending, which are fueled by epic levels of personal debt. Consumer demand is pulled back, because of the unemployment and the credit tightening, although interest rates are at historically low levels. If interest rates increase due to inflation, the demand will cause another major hit, additionally depressing GDP.

There are other reasons involved around GDP. In the recent decades, the USA went from one manufacturing and industrial economy to another, driven by customer services. This has not led to a decline in GDP, due to the way the production was calculated. For example, if you take care of your child at home, this is not considered for GDP, but it counts when you pay for your child to attend daily care services. The result is that all these services inflate GDP, because now we pay for many activities that we previously have done alone.

The current estimate of GDP is a masked reduction in real production over the past few decades. Since factories and other production facilities were closed, they were replaced by the more services that make real wealth. This is one of the reasons why millions of manufacturing working places have moved overseas, with no apparent decrease in GDP.

The US economy is becoming more dependent on escalating levels of debt, with 10% of the tax revenues that go to debt service this year. The remaining revenues are enough only to pay for national defense, social security and health care. Everything over that level is loan or printing. The distortion of the named programs continues to grow, as around 10,000 of the baby boomers proceed to retire every day. Unfortunately, the government will continue to borrow and print money, in order to create the illusion that the economy is progressively recovering.

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