U.S. Economy Has Achieved Perfection
Written by Jeff Nielson Friday, 29 January 2010 12:22
Articles & Blogs - US Commentary
Wow! Is this impressive, or what? The U.S. economy grew by 5.7% in the 4th quarter, so says the U.S. government. And if there is one entity we can always trust, it's Uncle Sam.
Clearly, I have been totally wrong in my analysis of the U.S. economy – or should I say its Super-economy? What I have finally realized is that the U.S. economy is so “strong” that the economic rules and principles which apply to every other economy in the universe do not apply to the U.S.'s Super-economy.
So what if construction spending is falling at a double-digit rate? The U.S. government has created countless “infrastructure projects”. Why spend a lot of time “constructing” things, with thousands of workers getting themselves all sweaty every day, when you can simply wave your magic wand and “proclaim” these infrastructure projects into existence?
And what about the retail sector, in this consumer-economy? Banks won't lend to consumers. Consumers won't spend. Retail outlets and entire malls are going bankrupt. No one is hiring...but still the U.S. economy grew by 5.7%. Just imagine what GDP growth would have been if anyone was actually buying anything?
How about the U.S. worker? They can generate more “economic growth” with tens of millions of them collecting unemployment insurance or welfare than all the less-advanced economies can generate with all of their workers labouring at jobs (talk about archaic!). Given that GDP growth has actually been increasing at the same time that more and more U.S. workers end up on unemployment insurance and welfare, the trend is clear. Soon, no one will have to work at all in the U.S. - and this will result in 50% annual growth in GDP.
Then there is the manufacturing sector. In its more primitive form, the U.S. economy used to have to make things in order to generate most of its wealth. Those days are gone! Who needs to make things, when the U.S. has “rising exports”? So what if much of these goods are actually originating in U.S. plants inside China – and then “exported” into the U.S. They are still “Made in the USA(-owned branch plants in China)”. While all those silly, Chinese workers slave away each day making their "U.S. exports", Americans sit at home collecting their "fat" unemployment and welfare cheques - putting their feet up, and lighting their cigars with hundred-dollar bills. Thanks to "Helicopter Ben's" magic printing-press, there are an infinite number more of them on the way.
Another area where the U.S. economy continues to demonstrate its superiority is with its financial sector. Both China's and India's government have just raised the reserve requirements for their banks – afraid that their economies could soon develop “asset bubbles”. The far-superior U.S. banks, on the other hand, don't need to bother with out-dated concepts like “reserve requirements”. Who needs them?
Even with 1 in 7 U.S. homeowners not making payments on their mortgages, 1 in 8 Americans not making payments on their credit card balances, and trillions of dollars in hidden losses (on 30:1 leveraged “assets” which are now worthless); U.S. big-banks (the only banks who count) are making huge profits...and all that was required to achieve this seemingly impossible miracle was to “improve” the U.S.'s accounting rules.
Thus, U.S. banks don't need “reserves”. Should we all be “surprised” in the future – if this magnificent, economic stallion should miss a stride – U.S. banks won't need reserves, they will just get the government to “improve” the accounting rules again.
What we are witnessing today is a “Goldilocks economy” - where U.S. markets and U.S. house prices will simply keep going up and up forever...Oh wait, that was the line Ben Bernanke used days before the largest asset-bubble in human history exploded.
Well, even if another asset-bubble should explode in the U.S. (despite the fact they don't exist), with the U.S. having a Super-economy, undoubtedly it would only experience a “soft landing” with no economic spill-over into other sectors...Oh wait, that was the line which Ben Bernanke used days after the largest asset-bubble in human history exploded.
The important thing is that Ben Bernanke is always right, that's why he was reappointed. This living-God of economics has enabled the U.S. economy to achieve perfection not just once, but twice – in less than 10 years. Where are all the statues and the churches which should be built, in his honour?
And with Tim-the-tax-challenged Geithner being promoted to Treasury Secretary (after years of skillfully “regulating” Wall Street while president of the New York Fed), there is simply no way the U.S. economy can lose with this Dynamic Duo eternally vigilant in making sure the U.S. economic juggernaut steams forward.
While I am reluctant to speak out against these economic deities (now that I have “seen the Light”), there is one point which is still troubling me, however. It's still too soon to draw firm conclusions, but the U.S. Super-economy may have one slight vulnerability, not shared by any other economy in the world: “evaporation”.
This is a new, and somewhat troubling phenomenon, where much of the U.S.'s “economic growth” evaporates into thin air, between the time the U.S. government loudly proclaims its “initial estimate” of U.S. growth, and the time it quietly whispers its final revision.
For example, in the third quarter of 2009, with the U.S. economy on the cusp of perfection, the U.S. government initially shouted-out that the economy grew by 3.5%. On the first revision it said the U.S. economy grew by 2.9%. Then for its final revision, the government whispered that the economic growth was only 2.2%. This works out to about a 40% evaporation-rate in U.S. “economic growth”.
What is more troubling is that most of the “evaporation” occurred between the first and final revisions. In economies that are being administered by mere mortals, second revisions are almost always much smaller than initial revisions – since the same people have had one more month to review the same data.
Of course, being a mere mortal myself, I'm probably just incapable of understanding the dynamics of a Super-economy – along with 300+ million Americans. This is why we are all so lucky to have the Dynamic Duo guiding the U.S. on its path to Perfection.
With the robust, 5.7% “growth” of this Super-economy being completely invisible to all of us mortals, the message is clear: we will all simply have to work much harder at studying The Gospel According to Ben and Tim if we also hope to reach the same level of “enlightenment”.
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written by Jeff Nielson, January 30, 2010
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written by swsprime, January 30, 2010
I do not disagree with your reasoning; they are major commodity players and they love Gold, But...
They have Two Trillion of Fiat Currency Reserves they must protect. Even a few percent of their Reserves used to acquire Gold quickly on the open market would send all the currencies in their portfolio into a tail spin and crash the value of these reserves. So they will play smart, buy commodity assets world wide, and just a little Gold till they are no longer in danger of a world currency crash, THEN they will buy Gold big time.
Its 'just a question of timing - How quickly can they exchange their stupid Fiat currency reserves for world commodity assets? Even if they buy all the assets they need at top dollar it will still take them some years to clear their decks of this Fiat Rubble.
Pierre Lassonde thinks the Gold Bull market has many years to run and that it won't be complete till the dollar price of Gold and the Dow reach parity - Wow! So I suggest the Chinese have a little time to play their hand.
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written by Jeff Nielson, January 30, 2010
Think strategically. They announce a big enough increase in reserves to get the world's attention, and to put a 'floor' in the market to greatly limit the games being played by the anti-gold cabal.
But (if you're China), the LAST thing you would do is to announce an increase in reserves SO large that EVERYONE understood what you were doing - and then became COMPETITORS for the limited amount of gold available. That follows YOUR OWN reasoning precisely.
Remember, NONE of the domestic gold they are buying needs to be reported/declared, ONLY what they buy on the "open market" (just like any other currency transactions).
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written by swsprime, January 30, 2010
I agree that the Chinese Government are long term strategists, but my take on this is a little different.
OK, they are the biggest producer of Gold in the world, but it would still take them 10 years of internal gold production to double their 2% of reserves which are Gold into 4%. They are not THAT patient.
They will not aggressively buy Gold because it will crash Fiat values and they have their huge Foreign currency reserves to protect. They will get out of Dollar and other Fiat currency reserves by accelerated buying of commodity assets like third world commercial Oil Rights, Canadian Gold Mining Companies, Brazilian rubber Plantations, whatever, till their reserves are heavily diminished and they will no longer be so hard hit if the Dollar collapses - then they will aggressively buy Gold with their remaining Fiat reserves and watch the Dollar et al fall from their financial precipice to be replaced by the only true currency; the only currency without third party risk - physical precious metal.
This will be a much quicker and a much safer way to protect their hard earned reserves.
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written by Jeff Nielson, January 30, 2010
I would suggest that the actions of the Chinese government indicate that they DO believe they will be able to get all the gold they want/need.
1) They are the #1 gold producer, and NONE of the domestic gold they are accumulating MUST be reported. This means that they could ALREADY have THOUSANDS of tons more than they have admitted to.
2) If China's government was not convinced they could bet all the gold THEY wanted, it's highly unlikely they would have urged their 1.3 BILLION citizens to start buying gold - and competing with them in global markets.
3) I'll repeat what I said before. This is a government which does NOT make all its decisions with no more than a two-year or four-year time horizon. This is the world's ultimate LONG-TERM planner. Do NOT sell them short!
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written by swsprime, January 30, 2010
I like the possible future scenario you paint regarding the Renminbi backed by Gold, but unfortunately China hasn't got the smallest chance of acquiring the Gold it needs to back it's currency and it knows it. If it tried to double or treble its' current 2% of reserves in Gold it would explode the price of Gold and crash the Dollar, which it holds a mountain of, and would therefore crash it's own reserves. The Chinese have no love of America; they feel continually slighted by American foreign policy with regard to Taiwan, but they are first of all governed by self-interest.
Of course it's also very savvy to the risk it has placed itself in by hording US Dollars and is now diversifying into commodity related assets as fast as its' under-developed international presence allows.
It will continue to acquire Gold surreptitiously without causing big waves in the market and will accelerate its' strategic world asset acquisition program over the next few years, relieving itself of its' Dollar hording. Then when it is no longer at risk from dollar devaluation it will ‘Sell-sell-sell’ its' remaining dollars driving the US currency down through the floor.
Why? Because revenge is a delicacy best served cold and the Chinese love delicacies.
The Renminbi won't become the new world currency, but Gold will.
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written by Jeff Nielson, January 29, 2010
Then there are the markets. I LOVED the "explanation" by the talking-head on BNN as to why the markets reacted with NO enthusiasm whatsoever to this "stunning news": it was because everyone was (secretly) expecting the U.S. economy to be this "strong".
It's clear now that the fable "The Emperor's New Clothes" is not even close to being realistic. In reality, it takes the sheeple MUCH longer than that to realize the Emperor is nude.
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written by JsJ, January 29, 2010
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written by Jeff Nielson, January 29, 2010
FYI, if you were one of the first two dozen to read this one that I ADDED a little more to it, after an edit.
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written by VelvetHammer, January 29, 2010
Also, didn't you know there is a huge oversupply of gold anyways.
Gold supply & demand balance, tones
Supply 2008 2009 2010
Mine supply 2,356 2,432 2,435
Scrap recycling 1,185 1,408 1,500
Hedging 33 38 20
Central Bank sales 298 351 260
Total supply 3,871 4,229 4,215
Demand
Jewellery fabrication 1,976 1,798 1,600
Legal tender coins 201 215 201
Electronics 422 366 390
Other end uses 313 284 250
ETFs 320 576 700
Central Bank purchases 191 380 250
De-hedging 374 229 120
Total demand 3,796 3,848 3,511
Residual (Surplus/Deficit) 75 397 704
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