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Wiedemer: Recovery is a Mirage, Fueled by US Govt Borrowing, Spending

By    |   Monday, 09 May 2011 02:09 PM

The U.S. recovery is a mirage, financed by government borrowing and spending, says Robert Wiedemer, a managing director of investment-advisory firm Absolute Investment Management and a regular contributor to Financial Intelligence Report, a monthly investment newsletter published by Newsmax Media.

Borrowing has fueled the supposed economic rebound. Now the government is painted into a corner, facing a debt ceiling but with no clear way to make the U.S. economy grow without taking on even more debt, warns Wiedemer, co-author of the best-selling book “Aftershock,” which predicts two more economic bubbles directly ahead for the U.S.

That means commodities like gold, silver, and oil, as well as stocks, will again rise in price as investors dump their dollars anew, Wiedemer predicts.

“Since 2007, our gross domestic product has increased by about $600 billion, while our annual borrowing has increase by about $1.3 trillion. So that means our borrowing has more than doubled what the entire increase in GDP has been,” Wiedemer told Newsmax.TV. “That borrowing is very much the key to all of the increased spending and consumer spending you see right now.”

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The real issue ahead is whether Federal Reserve Chairman Ben Bernanke will reignite speculation by reintroducing more quantitative easing, Wiedemer says. The central bank has supported the recovery in part by printing trillions of dollars to buy up Treasury debt on the open market, which has kept interest rates low.

“That’s the really big question. My guess is that you are, but not immediately. Ben knows that if he announces quantitative easing right now, people are going to get scared to death that this is just an unlimited printing machine. That’s going to hurt the dollar and make gold soar again,” he says.

The dollar stabilized at around 75 on the U.S. Dollar Index, well above its low of $70 while gold has recovered above $1,500 an ounce and silver has rebounded after a sharp sell-off last week.

The reason Bernanke is likely to resume printing dollars is the stock market, which rose during the first round of easing then collapsed when the Fed took a break last summer. That led the Fed to initial a second, $600 billion bond-buying round, known as QE2.

“The stock market has never gone up, since the financial crisis, when haven’t been printing money,” Wiedemer says. “I think you’ll have the pressure to print money again to keep the stock market up and the economy up, but he may not do it immediately after QE2 ends, and when he does it again, he may not do it at a fixed amount of $600 billion. But he may say, we’re going to print as needed,” he says.

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Nevertheless, commodities were due for pullback, although long term Wiedemer still likes them, including gold and even silver, which fell sharply last week from a 31-year high of $48.58 an ounce.

“We sold all our silver at $47, $48 and it has gone down about 20 percent or so from there,” Wiedemer says. “That said, long term, I remain a silver bull. I am very bullish on silver, I’m sure we’ll get back into silver.”

He does expect a resurgence in commodity investing, however, as the dollar is ground down by excessive borrowing by the federal government. “Is the party over for a little while? Yes. Is the party over long term? Not by any means. We have a long ways to go on the upside,” Wiedemer says.

As for oil, Wiedemer believes that while energy prices are likely to slow their rise, he does not expect gas to drop as Americans begin to drive more during the summer.

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The U.S. recovery is a mirage, financed by government borrowing and spending, says Robert Wiedemer, a managing director of investment-advisory firm Absolute Investment Management and a regular contributor to Financial Intelligence Report, a monthly investment newsletter...
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2011-09-09
Monday, 09 May 2011 02:09 PM
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