"Spend all you want. We'll print more."
For those who are following the latest in financial news, it has been widely reported that the President’s 800 billion dollar stimulus bill which was passed earlier this year is working. After all the stock market is up and businesses are showing profits. It seems on the surface things are looking up. However, there is very good cause to be skeptical. For one thing the jobless rate is at the highest level it has been in the last twenty six years. Another fact to consider is that the price of gold has climbed to nearly $1000 per ounce.
What does this information tell us? If the price of gold is rising, the value of the U.S. Dollar is in sharp decline. The 800 billion dollars that was spent by Washington merely created a bubble. This bubble will inevitably pop the same way the dot com and housing bubbles did in the past. This is not recovery, it is merely inflation. In the short term it may look like the economy is on the upswing, but that will be short lived as prices of goods and services rise to compensate for the weakening dollar. The elected officials in Washington D.C. probably understand this just as well as I do, but they aren’t interested in long term recovery. After all, election cycles run every two to four years. As long as the illusion of recovery can be maintained until 2012, the President can use his stimulus bill as ammunition for his re-election bid. After the election, the economy can go right back down the tubes for all he’d care. This would actually be eerily similar to the way his predecessor’s administration ended.
The U.S. economy is a lot like a heroin junkie. The economic collapse that befell us last year is akin to withdrawal symptoms. Like a junkie jonesing for his next fix, the economy was in bad shape. The 800 billion dollar stimulus bill was the metaphoric equivalent of a big shot of black tar right in the vein. Suddenly the junkie starts feeling better and is able to function. Everything seems fine for a while. However, once the high wears off, the junkie is in even worse shape than he was before he got his last fix. Now he needs an even bigger fix. This cycle continues on and on until the junkie ends up in rehab, jail, or the hospital due to an overdose. This will also happen with the economy. The stimulus bill temporarily staved off the symptoms of the recession, but eventually these symptoms will be back with a vengeance. I fear eventually our economy will die of an overdose of counterfeit stimulus money.
Instead of focusing on a more permanent solution, politicians from both major political parties seem more interested in throwing insane amounts of the taxpayers’ money in the direction of failed businesses and quasi-governmental agencies in hopes of temporary relief. The relief is always short-lived and usually leads to an even graver financial situation. Is the stimulus really working? No. Real economic recovery is not marked by record unemployment and massive inflation. This reality will manifest itself soon enough. The question is will it manifest itself in time for the next election cycle, or will the incumbent politicians be able to use this phantom recovery to their political advantage. I for one hope reality beats them to the punch.