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Yesterday, I received two Emails that are representative of what many main stream investors think about the economy.  They came from a dear friend, “Dr. J.” The good doctor tells me that he agrees with 90% of what I write – but the 10% he rejects just happens to be the basis that my views are founded on.  He is bullish on gold and silver but he is also bullish on the economy and is certain that we can overcome our financial problems and greener pastures lie ahead.  Here is our dialogue.

“Dr. J”: Just finished reading Bob Chapman’s latest views on the economy that he read in my daily and he sent me the following Email –  What is your response when even your gold guru’s acknowledge the economy is improving, though slowly.  You said the beginning of the collapse would be evident by Feb. or March. Sumdingwong???

My response to “Dr. J”: Let’s see what happens.  Be patient.  It will all become clear before 2011 is in the history books.  I never said things would collapse in February or March.  We have fallen into a deep, deep hole and have not climbed out yet.  A fair analogy would be a sick man who was running a temperature of 105 and receives a large dose of medicine (QE2) and his temperature drops to 104.  But he is still deathly ill. Yes, it is better than it was, but compared to what?  We have to replace over 10 million jobs to get back to where we were in late 2008.  The Fed and Treasury will create and borrow $3.5 TRILLION this year, just to keep the economy from collapsing. (Let’s hope that this recklessness does not lead to a collapse of the dollar and hyperinflation.) Yes, the stock market could even rise (thanks to the inflation from the Fed), but if it does, it is my view that it will rise less than inflation and less than gold. And the rise will NOT signal an improving economy, it will be the result of massive Fed and government spending and inflation.

Let’s hold off on popping the cork on the Champagne bottle for now.  Let’s wait until the end of the year.  The real issue is the dollar and how long the rest of the world will keep accepting it to settle trades in oil and as a reserve currency.

He wrote backI just read Sinclair and fell off my chair when he said he is bullish on the US economy for 2011 and buy selected stocks.   Richard Russell must think he’s smoking dope.  You watch, in three months the “doomers” will all climb on board.  UP  UP and Away!!!!!!  HI  HO SILVER.

My response: It wasn’t Sinclair, it was Monty Guild, a money manager that writes on Sinclair’s site.  I don’t think either Sinclair or Russell are bullish on the economy for 2011 but that doesn’t mean that the stock market may not rise due to massive inflation coming from the Fed.  I’m sure that they would both tell you that it will be years before the economy really improves.  It has already fallen so far that you are taking the current “dead-cat-bounce” as proof the economy is on the mend.  Where are the millions of new (to replace the ones lost) manufacturing jobs?  When will housing prices stop falling (not for years)?  As long as there is no significant increase in high paying jobs (manufacturing) and as long as housing values keep falling (lost equity, which is the main source of savings of most Americans) there really is little to be happy.  The best you can say about the economy is that, at least for the moment, it’s not getting worse.

14 Reasons to be concerned

“Dr. J” is like so many well informed people I know.  They equate the current state of the economy, what John Mauldin calls “muddling along,” with the end of the recession.  I do not.  Any improvement in the economy is minor and should be judged against how far we have fallen in the last four years, in order to get an honest perspective.  Late last night, one of my readers, (Melanie) sent me the following information, for which I am very grateful.  I shall send it to Dr. J.

#1 In November 2007, the official U.S. unemployment rate was just 4.7 percent.  Today, the official U.S. unemployment rate is 9.4 percent.

#2 In November 2007, 18.8% of unemployed Americans had been out of work for 27 weeks or longer.  Today that percentage is up to 41.9%.

#3 As 2007 began, there were just over 1 million Americans that had been unemployed for half a year or longer.  Today, there are over 6 million Americans that have been unemployed for half a year or longer.

#4 Nearly 10 million Americans now receive unemployment insurance, which is almost four times as many as were receiving it back in 2007.

#5 More than half of the U.S. labor force (55 percent) has “suffered a spell of unemployment, a cut in pay, a reduction in hours or have become involuntary part-time workers” since the “recession” began in December 2007.

#6 According to one analysis, the United States has lost a total of approximately 10.5 million jobs since 2007.

#7 As 2007 began, only 26 million Americans were on food stamps.  Today, an all-time record of 43.2 million Americans are enrolled in the food stamp program.

#8 In 2007, the U.S. government held a total of $725 billion in mortgage debt.  As of the middle of 2010, the U.S. government held a total of $5.148 trillion in mortgage debt.

#9 In the year prior to the “official” beginning of the most recent recession in 2007, the IRS filed just 684,000 tax liens against U.S. taxpayers.  During 2010, the IRS filed over a million tax liens against U.S. taxpayers.

#10 From the year 2000 through the year 2007, there were 27 bank failures in the United States.  From 2008 through 2010, there were 314 bank failures in the United States.

#11 According to the U.S. Department of Housing and Urban Development, the number of U.S. families with children living in homeless shelters increased from 131,000 to 170,000 between 2007 and 2009.

#12 In 2007, one poll found that 43 percent of Americans were living “paycheck to paycheck”.  Sadly, according to a survey released very close to the end of 2010, approximately 55 percent of all Americans are now living paycheck to paycheck.

#13 In 2007, the “official” federal budget deficit was just 161 billion dollars.  In 2010, the “official” federal budget deficit was approximately 1.3 trillion dollars.

#14 As 2007 began, the U.S. national debt was just under 8.7 trillion dollars.

Today, the U.S. national debt has just surpassed 14 trillion dollars and it continues to soar into the stratosphere.

So is there any hope that we can turn all of this around?

Unfortunately, the massive amount of debt that we have piled up as a society over the last several decades has made that impossible.

If you add up all forms of debt (government debt, business debt, individual debt), it comes to approximately 360 percent of GDP.  It is the biggest debt bubble in the history of the world.

If the federal government and our state governments stop borrowing and spending so much money, our economy would collapse.  But if they keep borrowing and spending so much money they will continually make the eventual economic collapse even worse.

We are in the terminal stages of the most horrific debt spiral the world has ever seen, and when the debt spiral gets stopped the house of cards is going to finally come down for good.

So enjoy these times while you still have them.  Yes, today is not nearly as prosperous as 2007 was, but today is most definitely a whole lot better than 2015 or 2020 is going to be.

A student explains Obama’s 100 Million Dollar Budget Cut. Please watch this one, it lasts only one minute and thirty-eight seconds. Recently Obama announced that over the next 90-days he is going to work to cut 100-Million dollars of spending out of the Federal Budget.  A college student explains how insignificant this cut is. VERY well done!


David Schectman

Miles Franklin