Wisdom Farms

Not All Data Supports a Bright Future for the US Economy

As you know I am a proponent that the fox is currently in charge of guarding the hen house.  The financial arena hires 1 in 7 people. So there are a lot of people who are interested in how money moves and have a "stake" to make sure the "chickens" are well tended and waiting for the slaughter. I do not trust the Federal Reserve, it is neither Federal nor a reserve.

Ever ask yourself why are there so many financial planners today? How much money do you have wrapped up in paper, plans and products that are basically worth nothing if anything would happen? What will happen to the paper you have placed your trust in, if that paper is devauled even more? 

Here is an excellent article by Brian Farmer exposing the Fox.

Not All Data Support Bright Future for Economy
By Brian Farmer

Investor's Business Daily (IBD) reported, "The U.S. economy expanded in April and May, the Federal Reserve said Wednesday, adding to signs that growth is picking up from the first quarter's tepid 0.6%."

Follow this link to the original source: "Beige Book Bolsters Views Of Economy Building Momentum  [1]"

COMMENTARY:

Although the article paints a relatively rosy picture for the future of the U.S. economy, many risks still remain. History shows that a hard landing or recession is still highly probable. In the past, recessions have occurred under the following circumstances:

1) Whenever gross domestic product (GDP) growth was less than 3% on an annualized basis for five consecutive quarters.

2) When the Fed tightened monetary policy (eight of the last ten times).

3) When the yield curve was inverted, i.e., when short-term interest rates were higher than long-term interest rates (six of the last seven times).

4) When the Conference Board Leading Indicators were 0.5% or more below a year earlier (nine of the last ten times).

5) When new building permits were 25% or more below a year earlier (seven of the last nine times).

6) Whenever payroll employment growth dropped to 1.4%.

All of the above have now occurred. It is worth noting that the consensus of economists has never predicted a recession in advance. Who would you rather go along with: a group of indicators with a high probability of being correct, or a group of "experts" that has never gotten it right?

One optimistic argument being made is that any softness in the U.S. economy will be largely offset by a strong global economy. But according to Northern Trust Chief Economist Paul Kasriel, this is not likely. He points out that the weakening segments of the U.S. economy — consumer spending, housing, and capital expenditures — account for 85% of GDP, while exports account for just 11.5%. In addition, domestic demand as a percentage of GDP is declining in Europe, China and Japan, meaning that exports are accounting for most of their growth. 

Kasriel estimates that U.S. consumer spending accounts for 29% of the rest of the world's GDP, and acts as their locomotive for growth. It is therefore unlikely that global growth prospects can be counted on to support the positive growth outlook for the United States.

The IDB article states, "May retail sales surged at the fastest pace in 16 months, the Commerce Department said earlier Wednesday. That suggests consumer spending continues to buoy the economy." But what the article fails to mention is that retail sales were a disaster in April, plunging to the largest monthly decline since 1970. To get a more accurate picture of what is happening, it is better to look at monthly figures going back over a whole year. The monthly bars in the Retail Sales chart accompanying the IBD article clearly show that the trend is down.

As the Federal Reserve forecasts a bright future for the U.S. economy, despite the aforementioned indicators implying otherwise, it is worth keeping in mind the words of Warren Buffet, arguably the most successful investor of all time: "Don't put your faith in forecasts. They are usually wrong."

Endnotes

[1] http://www.investors.com/editorial/IBDArticles.asp?artsec=5&issue=20070613

http://www.jbs.org/node/4403/print 

In His Service,

Ray
Wisdom Farms

http://www.wisdomfarms.com

Untitled Comment

03:34, Saturday, June 16, 2007 .. Posted by Keeblur

Thank you for sharing that. I must admit that some of it was above my head though. The only debt we have is the house, but right now its such a struggle, I don't understand how anyone with credit cards and such can make it. With so many people in debt, its easy to see how the US can be headed into serious trouble!
Vicki

Untitled Comment

11:12, Wednesday, June 20, 2007 .. Posted by meme21713

just read about the night out with the 14 year olds...lol....The wonderful life of a parent.....lol..enjoy these days, they will soon be gone forever....Debie