Friday, May 27, 2011

US economy needs to be fixed---By Shan Saeed

US economy is in dire straits. In June 2010, I noted and shared that a well known financial sector analyst and the woman who blew the doors open on the 2008 mortgage crisis, Meredith Whitney, was forecasting that two million government employees would see their jobs cut over coming years because of fiscal problems. It’s happening.

Over 300,000 jobs have been cut in fiscal year 2011, and that number is about to increase 50% going into 2012: You think its funny..Around 450,000 people who work for U.S. states, counties, cities, towns and villages could get pink slips in fiscal 2012, sharply up from the 300,000 positions shed this year in 2011. The number of job cuts will rise mainly because the federal stimulus program is ending while the cost of Medicaid is “spiraling,”.

States got billions of extra dollars primarily for education and Medicaid from the stimulus plan. Medicaid is the state-federal health plan for the poor and disabled.
The deficits states and municipalities will have to close will climb to $155 billion in fiscal 2012 from about $108 billion in the current fiscal year.

So much for job creation. After hundreds of billions of dollars spent on government entitlement programs, it’s clear that government budgets are unsustainable. Budget deficit is standing at $14.2 trillion.

First the cities and the states will go bankrupt (it’s clear that most are insolvent right now). The Federal government will do their very best to bail them out. But will it work. Big question mark. Eventually, the Federal government, itself insolvent, will be recognized for what it is: bloated and bankrupt.

The real fun begins when the rest of the world finally responds to the US sovereign debt crisis by cutting off the international credit card, leading to the collapse of the largest credit bubble in the history of the world.

US would be going backward in financial development and economic growth. What backs currency is confidence in a government's ability to pay debt, its government system and its economy. US dollar is weak and bearish in outlook. Investors have started pilling up Gold and Silver in their asset portfolio.

Some aren't calling for gold to be used as tender but are calling for a return to the Gold Standard, which attaches the value of the dollar to a certain amount of gold. I have been bullish on gold, silver and oil for the last 12 years. A return to the gold standard would stabilize the dollar by discouraging hefty fiscal spending as well as preventing the Federal Reserve from printing excess money. QE will not be able to fix the economy.

According to Steve Forbes, former GOP presidential candidate and Forbes Magazine Publisher "People know that something is wrong with the dollar,". He furthermore, added "you cannot trash your money without repercussions. What seems astonishing today could become conventional wisdom in a short period of time.

Disclaimer: This is just a research piece and not an investment advice. Investors are encouraged to execute their own due diligence before making any financial commitment or entering into financial contract. All financial transactions carry a RISK

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