Tags: Michael Lewitt | credit | economy | weak

Lewitt: Economy Is Weakening as Crushing Debt Loads Hinder Growth

By    |   Friday, 06 March 2015 11:00 AM

U.S. economic growth is weakening and there’s not much the Federal Reserve can do about it as Americans cope with massive debt loads, said investment strategist Michael E. Lewitt.

“After trillions of dollars of stimulus, U.S. GDP growth is still only 2 percent,” Lewitt said in the March 1 edition of his Credit Strategist newsletter. “People can point to the weather, lower oil prices and the strong dollar for why the economy cannot achieve escape velocity, but the primary reason is the suffocating weight of public and private sector debt.”

U.S. gross domestic product, a measure of the country’s total economic output, grew 2.2 percent to $17.4 trillion in the fourth quarter from a year earlier, compared with average growth of 3.27 percent in the post-War period from 1947 to 2014.

Federal debt has risen 52 percent to $18.1 trillion from $11.9 trillion in 2009, when the recession ended, while household income has declined, making it harder for consumers to cope with total debt of $11.7 trillion as of Sept. 30.

To spur growth, the Federal Reserve lowered interest rates to record lows, then embarked on a trillion-dollar bond-buying program to make saving money even less attractive.

“Even with low (or non-existent) interest rates, an enormous amount of financial and intellectual capital is devoted to debt service rather than more productive uses,” Lewitt said. “The result is structurally slow growth.”

Lewitt said last year’s GDP numbers shouldn’t be trusted because they were skewed by required Obamacare spending.

“The other figure that is cited to support the bullish case is GDP growth, but last year’s GDP numbers were distorted by higher healthcare spending mandated by the Affordable Care Act,” he said.

He also said the labor market is much weaker than the 5.5 percent unemployment rate indicates. A broader measure of unemployment, the so-called U6 that includes discouraged workers and people who are working part-time because they can’t find full-time work, was 11 percent as of February.

“Too much emphasis is placed on a single data point — payrolls — which is a lagging indicator and remains far below the levels of previous recoveries,” he said. “Contrary to what the Federal Reserve, Wall Street and much of the financial media are telling people, U.S. economic growth is not robust.”

The crash in oil prices since last summer and decline in gasoline prices aren’t likely to boost consumer spending, he said, citing Goldman Sachs research that found minimal correlation between lower gas prices and higher retail sales.

“While many experts expect consumers to behave as they have in the past and spend their gasoline savings on other disposable items,” Lewitt said, “perhaps they should consider that earlier periods of sharply lower oil prices did not coincide with either higher government-mandated healthcare spending or an e-commerce revolution.”

Meanwhile, Investor's Business Daily editors blame President Barack Obama's regulatory policies and poor economic incentives for sapping the U.S. economy of approximately $1.7 trillion a year.

"Put in simple terms, President Obama has presided over an unprecedented regulatory siege that has strangled the economy and discouraged entrepreneurship," they wrote in an editorial.

The editors cite a Competitive Enterprise Institute study showing that Americans paid $1.9 trillion last year to comply with Obamacare, EPA limits on carbon dioxide emissions, energy restrictions and all the government's other regulations.

"At some point, we hope average Americans will stop believing the mistruths pushed by liberal politicians and their media allies and demand pro-growth policies based on low taxes, few regulations, stable money and free trade — the one policy mix that always works," the editorial said.

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U.S. economic growth is weakening and there's not much the Federal Reserve can do about it as Americans cope with massive debt loads, said investment strategist Michael E. Lewitt. "After trillions of dollars of stimulus, U.S. GDP growth is still only 2 percent," he said.
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