The Stimulus Failure and Economic Collapse

One of the biggest stories this week was a report that a majority of economists see the Obama stimulus bill as a failure. ("Economists: the stimulus didn't help") According to these economists, the stimulus package both failed to create jobs and improve the economy, which were its supposed two main purposes. Instead, it has been pretty well documented that the Obama stimulus has operated more like a giant political slush fund, rather than a piece of legislation drafted to address the financial hardships Americans are experiencing. How else to explain the fact that "Democratic districts won twice as much stimulus as GOP districts." Well, they wrote the bill, so why not take in the spoils?

This survey of economists is yet another report, on top of the visible proof, that the stimulus failed and has only made the problem worse by papering over the problems that exist, namely excessive government spending, lax enforcement of existing financial regulations, government-forced lending to unqualified recipients, and government intervention in markets. With unemployment hovering around 10%, the real unemployment rate hovering around 17%, the highest deficits and debt in U.S. history, a costly and oppressive health care bill, a record-high budget proposal, and an unprecedented expansion of government spending, the problems will not go away, and in fact, they are going to get a lot worse in the future unless government changes its current actions.

So what is the administration's response to the fiscal insanity? To cut spending? To decrease the over-bloated size and reach of the government? To lower taxes on workers and employers in order to increase productivity and commerce? Nope, no, and not a chance. Obama's brilliant solution is to appoint a bipartisan commission with the task of advising how to reduce the deficit that he just created. And of course, the conclusions of this panel will be for "austerity": to raise taxes, introduce new taxes (like the VAT), and cut spending. But will they cut spending where it really counts, namely entitlements? Of course not. The spending that will be cut will be on defense, which will further exacerbate American decline, making the world a lot more dangerous. Just ask Taiwan, Japan, and South Korea, and that's just in East Asia.

What makes one's blood boil is the fact that the record-high deficits have been created by the out-of-control spending of Obama and the Democrats since last year. And as soon as they enact economy-killing spending legislation, they immediately try to play the fiscal responsibility routine:

This is a now familiar pattern for the White House: first enact record breaking levels of deficit spending, then turn right around and promise austerity sometime in the future. This February, after signing the largest single-year increase in domestic federal spending since World War II, President Obama held a “fiscal responsibility” summit designed to “send a signal that we are serious” about putting the nation on sounder financial footing. The Washington Post’s Dana Milbank quipped at the time: “Holding a ‘fiscal responsibility summit’ at the White House in the middle of a government spending spree is a bit like having an Alcoholics Anonymous meeting at a frat house on homecoming weekend.”

As stated earlier, the economic outlook is bleak. Two highly successful businessmen and financial gurus, Peter Schiff and Marc Faber, echoed economists fears by stating in no uncertain terms that "the economy is in worse shape than in 2008," and that "governments will bankrupt us."

Peter Schiff:

"A lot of people were confused – they thought the market going up was somehow ratifying what the government had done – that the stimulus and bailouts were good and the economy was improving – it's not," Schiff says. "The economy is in worse shape than in 2008."

Rather than resolved the crisis, all we've done is papered over problems in the banking system with "phony accounting" and "dug ourselves deeper into debt," says Schiff, a longtime deficit hawk.

The crisis of 2008 was merely the "overture" to the "real crisis" Schiff (still) sees coming: "The real crisis is going to be a currency crisis, a funding crisis, a sovereign debt crisis – and that's when we have to pay the piper," he says. "We're in very bad shape. Sovereign credit risk in the U.S. is just as great -- if not greater than [in] Greece."

Marc Faber:

Current economic policies are not sustainable and the world faces doom because "the governments are taking over"..."They will all bankrupt us and expropriate us, but it may not happen tomorrow. They'll give us something to play with, until the whole system breaks down...they'll just print money and print more money."

"What I object to the current government intervention in so-called 'solving the crisis', (is that) they haven't solved anything. They've just postponed it."

Faber warned that the "ultimate armageddon" would be much worse the next time around, as "governments will go bust", which would lead them to print more money.

Unless a Republican congress is elected this November that pledges to and fulfills the promises of repealing the "health" care bill, cutting entitlements and government spending, lowering taxes and enforcing existing regulations, while encouraging open markets and setting balanced budgets, any hope for an American resurgence is lost. Forever. Because if the situation is not rectified, the next step will be an increase in the supply of paper money, which will result in massive inflation, which will fatally cripple the American economy when combined with all the other conditions, including the political environment.

In other words, say hello to the rapid decline of America.

In regards to advice for the future, both Schiff and Faber are singing the same tune - along with thousands of other investors:

Schiff’s investment thesis also remains the same: He's "trying to capitalize on better opportunities that exist abroad" by being long commodities like gold and sliver, agriculture, global resource producers and emerging market stocks

and

Instead of holding cash, Faber, commonly referred to as 'Dr Gloom', advised investors to "gradually accumulate physical gold and silver" while those who want exposure to shares of gold exploration companies should buy them from time-to-time when they become cheap.

"Some of them still have reasonably good value at the present time. This is a long-term strategy because in an environment where governments will print money — and I'm convinced they're gong to bailout Greece, which means you transfer essentially bad assets on to the balance sheet on the government," he said.

When that happens, Faber warned the purchasing power of paper money will go down, rather than an appreciation of precious metal prices.

"Paper money (will go) down relative to precious metals. So in that environment, I think you...should all accumulate some gold.