Cracks in the U.S. Economy Slowly Starting to Show

 

Surprise, surprise, surprise…

The Commerce Department reported yesterday that the U.S. economy grew (i.e. GDP) at only 1.8% in the first quarter of 2011—below analyst expectations. On Wednesday, the Federal Reserve said that it expects GDP to be 3.1% this year.

Separately, the U.S. Labor Department reported an unexpected weekly jump in jobless claims to a three-month high. Jobless claims in the U.S. rose by 25,000 to 429,000 for the week ended April 23, 2011.

Dear reader, this is what you need to know:

The real estate crash that started in 2006 took down the mortgage market and created the credit crisis, which delivered to us the worst recession since the Great Depression. (I remind my readers that, back in 2006/2007, then Fed Chairman Greenspan said that the softness in the housing market would be isolated.)

Under the direction of current Fed Chairman Ben Bernanke (who I believe to be the best Fed chief we’ve had in decades), the Fed pulled out all the stops to save the economy from another depression. The government also chipped-in, basically saving Wall Street.

With so much monetary and fiscal stimulus in the economy, it was a given that we would bounce back from the depths of the recession. But the actions of corporations, in either their bankruptcy or their quest to be profitable again, created severe unemployment issues that will not go away anytime soon.

The government’s actions of saving banks, insurance companies, car companies and more caused our national debt to boom…another consequence of the Great Recession that will not go away.

Then we have the Federal Reserve keeping short-term interest rates near zero and flooding the system with dollars—the effects of which will be a devaluing dollar and inflation.

The cracks in the U.S. economy are starting to slowly show. We can’t have a government/Fed-induced recovery, as it will not be long-term, but only temporary in nature. The economy cannot repair itself without the housing market and without jobs from the manufacturing sector—both of which will not recover for years to come.

Everything is limited in time and money. So just ask yourself this question: How long can the government/Fed duo continue to create debt and issue dollars before the tools used to fend the recession become a liability in themselves?

Michael’s Personal Notes:

What the Fed really said…

I’m sure by now you’ve heard about Fed Chairman Ben Bernanke’s first press conference following a Fed policy meeting this past Wednesday.

Bernanke said that the end of the Fed’s $600-billion bond-buying program will be in June, the termination of which should not have a “significant” effect on the financial markets. I read this as saying that the…

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