Saturday, June 4, 2011

US is heading for recession in 2012---by Shan Saeed

Fed, Congress Can’t Stop Recession in ‘Miserable’ 2012 by Shan Saeed

The United States is headed for another recession as the Federal Reserve and Congress have no more tools left to keep the economy moving enough to avoid another slowdown.

The economy is due to cool off anyway, as the last recession began in 2007, and an end to money printing and stimulus spending will send the economy tanking anew.

I am curious that cutting the deficit means cutting final demand. It means the economy is going to slow. It might not be a bad thing to cut the deficit but unfortunately, when you cut the deficit, you’re going to get a recession — you’re going to get a slowdown. The more you cut the deficit, the worse it’s going to be.
I must say that next year is going to be truly miserable.

A recession will boost Republicans’ chances of taking back the White House in the 2012 elections, even if their spending-cut policies help throw the country back into recession. Furthermore, the Federal Reserve might try more quantitative easing (QE), where it prints money in hopes banks take that money and fuel economic growth, but such polices haven’t worked in the recent past and won’t work in the future.

I don’t think QE works very well because basically it puts money into the banks’ hands, and the banks aren’t lending it out. The banks are investing in markets and driving market prices up. QE is creating equity and housing bubble in the emerging economies esp China, driving up interest rates and inflation in those regions. Analyze China, Brazil, Korea, Thailand, Vietnam.

In other words, only the markets here and abroad benefit from quantitative easing, but not normal people. It is not putting money into the hands of the consumer or of the small-business man. Nevertheless, such a scenario will unveil a counter-intuitive trading opportunity: the U.S. dollar. US Dollar is a bubble that will eventually bust. Politicians will be forced to act and prep the economy for more long-term recovery.

The more troubling issue is the debt ceiling. The stronger the bond market will be and the stronger the dollar will be. I am referring to the $14.3 trillion government debt limit, which was recently broken and currently under analysis by lawmakers for an upward revision. And that is something obviously that’s going to really drive the dollar up. Europe can’t do anything, Europe is falling apart. US might be able to handle the austerity and for the long run.

Bond markets are showing that many market players feel darker times are around the corner thanks to continued high unemployment rates, weak housing prices and sluggish economic growth in general.


Housing Bubble
Private spending bubble

Future Bubble Warning

1. US Dollar is a bubble
2. US Debt is a bubble
3. Unemployment is a bubble

The yield on the benchmark 10-year Treasury note fell below 3 percent recently, the first time since December, on evidence the economic recovery is losing momentum — and losing it fast. It does look like US is heading for all these bubbles to be busted.

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

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