Tags: Dent | Recession | Fed | economy

Author Harry Dent to Moneynews: Fed Tactics Won't Save US From Unavoidable Recession

By    |   Friday, 10 Aug 2012 09:47 AM

The United States cannot avoid sliding back into a recession and Federal Reserve stimulus measures and government spending in general are powerless to prevent it, said financial author Harry S. Dent Jr.

The U.S. government, and consumers in general, have been on a borrowing-and-spending spree for too long now and the time has come to let the economy wane while the country pays off its debts.

That doesn't happen overnight, and the Fed will surely adhere to its mandate to ensure price stability and optimal labor conditions by rolling out a monetary policy tool known as quantitative easing (QE), under which the Fed buys Treasury holdings and mortgage-backed securities from banks with money printed out of thin air. This pumps up stock prices and pushes down interest rates to encourage investing and hiring.

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The Fed has rolled out two rounds of QE since the recession began, injecting a total $2.3 trillion into the economy in the process on top of hefty federal spending programs.

Such measures saved the country from an abyss but won't save it from a long-term period of slow growth and deleveraging.

"It is inevitable that we will head into another recession because what the stimulus did including the $2 trillion-plus in Federal Reserve quantitative easing — QE1 and QE2 they call it — this stimulus kept the economy from melting down, particularly the financial system and the banks," Dent told Newsmax.TV in an exclusive interview.

Today, however, baby boomers are cutting back on spending, which will dampen the economy and stimulus won't help there.

"This generation on average is going to be saving more, spending less and paying down borrowings actually and the last thing they are going to be doing is buying homes and housing," said Dent, founder of HS Dent Investment Management, an investment firm based in Tampa, Fla., and president and founder of the H.S. Dent Foundation.

"So the economy is going to continue to slow over the next decade until the next generation comes along," said Dent, author of “The Great Crash Ahead: Strategies for a World Turned Upside Down.”

Editor’s note: To order ‘'The Great Crash Ahead'' at a great price — Click Here Now.

Between 2000 and 2008, private-sector debt exploded, soaring to $42 trillion, while the government is facing debt burdens of its own to the order of about $16 trillion.

Trying to move forward with such debt weighs down on the country, so deleveraging is natural, even healthy at this point.

"We had the greatest real-estate bubble in history, and that debt bubble and this real-estate and asset-and-stock bubbles are all deleveraging and trying to deleverage just like what happened to Japan in the 1990s, but governments are trying to prevent it," Dent said.

"So we have this epic battle: the economy wants to slow, debt wants to deleverage and consumers want to save and get back into balance and governments are saying 'No, we have to keep the bubble going.' And so they are going to fail and we say it's inevitable," Dent added

"We think there is a chance of a mini crash in the next few months as Europe is starting to implode and then by mid to late next year, almost for sure, the U.S economy in addition to the global economy is going to slow and then we are in real trouble."

Japan tried to stimulate its economy after entering a downturn in the 1990s, but such policies didn't work.

"Over two decades later, their stocks are still near their bottom, down 80 percent. Their real estate is still near its bottom, down 60 percent and their economy has never recovered," Dent said.

"Quantitative easing doesn't work. All it does is ease the pain and put off the crisis down the road."

Still, the Fed will intervene anyway, likely in September or in October.

Watch for slumping manufacturing figures or weak quarterly gross domestic product rates to serve as the tipping point.

Unemployment rates may grab the most headlines due to their refusal to budge beneath 8 percent, but the monthly jobs report is backward looking, and the Fed will have likely intervened before the country notices further upticks in jobless numbers.

"We see the economy as likely near its worst between late 2014 and early 2015."

"We're going to see booms and bust with a downward bias just like we saw in the 1930s and in the 1970s."

Editor’s note: To order ‘'The Great Crash Ahead'' at a great price — Click Here Now.

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