A lot of people are uncertain about the U.S. economy. In many cases, it seems to be a walking contradiction.
The stock market is up over 50 percent, yet our portfolios seem to be down. Consumer confidence numbers have been growing, yet nobody seems to be shopping. Obama has spent trillions on bailouts and stimulus, yet companies don’t have money to pay people, let alone hire new workers.
So what is the forecast for the economy?
To borrow a line from a popular children’s book, now turned into a No. 1 hit movie, the U.S. economy’s forecast is cloudy with a chance of depression.
Many people are saying that the United States will become a Third World nation and that we will become like Zimbabwe, where inflation runs rampant and there is no economic stability.
While this may not be the case, we aren’t in the clear by any stretch of the imagination.
The officially-stated unemployment rate in the United States is 9.8 percent. No one believes that is the real unemployment rate because it does not account for people who are working for less wages than they are accustomed to, or for people who do not work full-time hours, or a host of other factors. Many people, including Atlanta Fed chief Dennis Lockhart and global investor Marc Faber, believe that unemployment is somewhere around or above 16 percent.
America also sends more money away to the rest of the world than it takes in. Our most recent trade deficit was $32 billion for the month of July. That means we spent $32 billion more buying goods from foreign countries than foreign countries bought of U.S. goods. In other words, we just sent $32 billion into the rest of the world.
When you consider that we have 12 months in a year, these record trade deficits could cost Americans more than $300 billion a year.
Now I know in the age of Obama and Geithner, billions don’t mean anything. You don’t really get noticed until you lose trillions. But the money has to come from somewhere, and where it’s going to come from is your pocket.
Keep in mind that we still have not even accounted for the interest that’s accumulating on America’s national debt, which is $11.8 trillion and growing by the second.
But the prognosis is not all bad. Economists from the Conference Board have reported that the index of leading economic indicators rose 0.6 percent in August, the fifth straight increase.
The coincident index, designed to measure current activity, was flat in August after an upwardly revised 0.1 percent gain in July, the Conference Board said. The increase in July was the first since September 2008 and just the second since the recession began in December 2007.
The latest Reuters/University of Michigan index of consumer sentiment shows that confidence among U.S. consumers has risen to 73.5, the highest level since January 2008.
The Dow Jones Industrial Average, the S&P 500, and the Nasdaq are all up around 50 percent from their 52-week lows.
There is good news in a lot of areas. But here’s where you have to take the numbers and see what they mean.
It’s very easy to find numbers that fit a preconceived idea. Whether we are in a bull market or a bear market, there will always be both good and bad economic numbers.
So how can we find out how the economy is doing?
Very simple. You have to take it to the streets.
You can’t always believe the numbers. Sometimes the numbers have a funny way of not telling the whole story.
If you want to see if people are spending money, visit the best restaurant in your neighborhood. Recently, I was dining at one of the trendiest restaurants in Palm Beach, and on a Friday night, the place was empty. Three years ago you had to fight to get a table to eat at this place; now you could sit anywhere you like.
If you want to know if retail spending is really up, visit your local mall or town shopping center. I did, and I found that some of them are ghost towns while others are struggling to get by.
Talking with managers and store owners, businesses are trying to make ends meet by reducing inventory, letting go of personnel, cutting wages, and reducing expenses across the board. Try walking into a local boutique clothing store. Chances are, that same store that always had three employees working at a given time is now down to only one.
Fed Chairman Ben Bernanke says that the recession is over, but try telling that to business owners who have had to close up shop, fire employees, cut wages, or reduce inventory.
Washington bureaucrats and academic elites believe that the recession is over, however Americans across the country feel the effects of the recession. They see it in their bottom lines and bank accounts everyday.
Even the G-20 had concerns about the supposed U.S. recovery because it was due largely to government borrowing and stimulus, both of which are short-term solutions.
Eventually, Americans need to produce more while spending less. America has long been the world’s consumer, sending billions of dollars each year to the rest of the world to feed our consumption for goods.
Now we need to keep some of that money. We need to increase domestic production, find new, innovative products that the world will need, and we need to tighten our belts. And when I say we, I mean everyone, including the government.
In times of recession, businesses shrink, consumer spending shrinks. Everyone tightens their belt, except government. Government, for the most part, is always expanding. When the United States has managed to rein in spending, like we did during the Clinton era of the late 1990s, we have seen great periods of wealth and success.
That’s why America is so great. There is no challenge too large, no task too great. Ultimately I think that the American people will find ways out of the recession. Innovators will come up with new products. Families will save more for the future. Americans will get tired of wasteful government spending and will elect leaders who cut the budgets and not expand them.
This is the forecast for America. And while major forces like unemployment, balance of trade, and the national debt may look bleak, America can do it.
The threat of a long-term depression is very real, and if government borrowing and wasteful spending continue their path, that depression will hit us in a very real way.
Nobody said that being the world’s most preeminent superpower was going to be easy. But hey, that’s why we are the United States of America, still the greatest land on God’s good earth.
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