Two More Reasons Why America’s Economic Recovery Is Not As It Seems

By Jerry Robinson

The mainstream financial commentators still don’t get it. After years of getting it wrong time after time, many of the financial pundits and talking-heads are now puzzled as to why the price of gold is still going up considering that the “economic recovery” is finally taking hold. In my next article, I will outline several reasons why gold will reach $1,300/oz by the end of the summer. For now, let’s quickly consider two more reasons why the so-called economic “recovery” is not actually as good as it may seem on the surface.

GDP Numbers: Many have pointed to increasing Gross Domestic Product (GDP) numbers as evidence that an economic recovery is beginning. This would be true if the numbers were not overly inflated by outrageous amounts of government spending which were then followed by government stimulus designed to increase consumption in the private sector. To illustrate this, consider how GDP is calculated. The components that economists measure when calculating GDP can be summed up nicely with the following equation.

GDP = C + I + G + EX – IM

In plain English, this calculation states that GDP is equal to four things added together:

• Consumer spending (All of the goods and services purchased by U.S. consumers)
• Investment (Includes purchases made by industry in new productive facilities)
• Government spending (The goods and services purchased by the Federal government with your tax dollars)
• Exports minus Imports, or Net Exports (If exports from the U.S. exceed the amount of imports brought into the U.S., then it adds to the GDP. The opposite is also true. If imports exceed our own exports, the net amount is deducted from our GDP.)

As you can see, GDP is more of a measure of spending than of economic growth, even though it is portrayed that way by the government and the mainstream financial media.

Today, the Federal government’s economic policies are predominantly driven by economists who are heavily influenced by Keynesian economics. Keynesian economics is named after the influential 20^th century economist, John Maynard Keynes. According to Keynesian economics, periods of economic contraction are unacceptable. Instead, if the economy appears to be doing anything short of going straight up, Keynesian economists urge government intervention. During the recent economic crisis, the Federal government’s economic policy of intervention was clear. In essence, when consumption (C) slows, and when businesses cool their investment spending (I), the government increases its spending (G) to maintain the illusion of economic growth. God forbid we actually live in a normal economic cycle and have a down year!

When the government spends money, it creates nothing and instead increases the tax burden upon the populace. Meanwhile, the mainstream financial commentators see increases in the quarterly GDP numbers and rush to declare “recovery!” What these pundits fail to realize is that government spending comes at a cost. That cost is higher future taxes.

Unemployment Rate: In May, the Department of Labor reported that 15 million Americans remain unemployed bringing the unemployment rate back down to 9.7% from 9.9% in April, and the entire first quarter of 2010.

But let’s not forget that the real unemployment rate is not 9.7% as the government is reporting. Instead, when you add in those who are working part-time but want to work full-time and those who stopped looking for work the real number comes to 16.6%. This rate is referred to by economists as the U-6 rate. But even the U-6 rate only gives us a glimpse of the unemployment picture because it does not include all of the self-employed workers who face decreased income, nor does it include those who have opted to leave their job to go back to school to increase their job opportunities.

According to the Department of Labor, non-farm payrolls rose by 431,000 jobs in the month of May. After the numbers were released, President Obama applauded the drop in the unemployment rate and the large amount of new jobs created. However, the devil was in the details and those details led to a massive sell-off on the U.S. stock market as investors flocked to bonds and precious metals.

Economists had forecast that the private sector would add 180,000 jobs for the month of May. Instead, the private sector added only a paltry 41,000 jobs.

But, Census hiring added 411,000 new government jobs during this same period. Remember that Census jobs are temporary and will therefore provide little relief to our long-term employment outlook. Besides, even if they were permanent, government jobs add nothing to the real economy. This is because the government is not in the business of production. And because the government produces nothing, it cannot be relied upon as a sustainable engine for the economic growth of a nation. In fact, not only do government jobs add nothing to our economy, they actually subtract from it. Why? How are government salaries funded?

Through your hard-earned tax dollars.

Every new government job that is created takes away from our nation’s collective ability to produce real goods and services. And more government jobs means bigger government. And the bigger our government gets, the more expensive it becomes. How do you fund bigger government? You must raise taxes.

Additionally, there are more problems on the U.S. unemployment front:

• The length of time that the average American is unemployed continues to rise dramatically
• The most basic measure of employment, the civilian employment-population ratio is at 30 year lows
• Government employment continues to expand
• Durable goods manufacturing employment is on the decline
• Manufacturing employment is at 70 year lows

Given all of these stark realities, investors around the globe are justifiably beginning to question the abilities of this current administration to effectively confront America’s economic challenges, let alone comprehend even the most basic of free-market economic principles. In the final analysis, America can choose to grow its economy, or it can choose to grow its already bloated government. But America cannot grow both of them at the same time. Their attempts to succeed at doing both are failing before a global audience. This explains why we are witnessing a flight to safety in stable foreign currencies, precious metals, insurance, and bonds as risk appetite wanes in favor of capital preservation.

 
Unemployment Rate: In May, the Department of Labor reported that 15 million Americans remain unemployed bringing the unemployment rate back down to 9.7% from 9.9% in April, and the entire first quarter of 2010. But let’s not forget that the real unemployment rate is not 9.7% as the government is reporting. Instead, when you add in those who are working part-time but want to work full-time and those who stopped looking for work the real number comes to 16.6%. This rate is referred to by economists as the U-6 rate. But even the U-6 rate only gives us a glimpse of the unemployment picture because it does not include all of the self-employed workers who face decreased income, nor does it include those who have opted to leave their job to go back to school to increase their job opportunities. 
 
According to the Department of Labor, non-farm payrolls rose by 431,000 jobs in the month of May. After the numbers were released, President Obama applauded the drop in the unemployment rate and the large amount of new jobs created. However, the devil was in the details and those details led to a massive sell-off on the U.S. stock market as investors flocked to bonds and precious metals. 
 
Economists had forecast that the private sector would add 180,000 jobs for the month of May. Instead, the private sector added only a paltry 41,000 jobs. But, Census hiring added 411,000 new government jobs during this same period. Remember that Census jobs are temporary and will therefore provide little relief to our long-term employment outlook. Besides, even if they were permanent, government jobs add nothing to the real economy. This is because the government is not in the business of production. And because the government produces nothing, it cannot be relied upon as a sustainable engine for the economic growth of a nation. In fact, not only do government jobs add nothing to our economy, they actually subtract from it. Why? How are government salaries funded? Through your hard-earned tax dollars. Every new government job that is created takes away from our nation’s collective ability to produce real goods and services. And more government jobs means a bigger government. And the bigger our government gets, the more expensive it becomes. How do you fund bigger government? You must raise taxes. 
 

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