The Economy Is Weaker Than Government Reports Show

by: Dave Kranzler

"Someone is going find out sooner or later that what they thought they were going to get, they're not going to get." -- Eric Sprott, in reference to the massive and accelerating deficit in U.S. Government entitlement promises

It's interesting to note that the above quote from Eric Sprott can also be applied to everyone invested in the various forms of paper gold/silver and who believe that the custodian of the trusts and exchanges (Comex, LBMA) actually have the gold/silver in the amounts represented by the paper securities outstanding. I'll address this issue below.

In fact, to tie that into my subject title, one could say that Americans are not getting the economy that the Government, and the Wall Street charlatans who own the Government, is representing through fraudulent, Orwellian data reporting. But let's take a look under the hood.

I want to start off with a study reported yesterday that showed the net worth of American households hit a 43-year low: "The median net worth of American households has dropped to a 43-year low as the lower and middle classes appear poorer and less stable than they have been since 1969." You can read through the details and, needless to say, I'm sure that news report failed to make most mainstream media outlets.

There's just no way that the housing market can possibly recover with that fact about household net worth being the case. I've been threatening a big update post on the housing market, and it will happen soon, but not only does that net worth report contradict the view popularly promoted by the mainstream that housing values are climbing again, but if the average American household net worth is declining, it would be impossible to forecast anything but a lot more downside for the housing market.

Yesterday the ISM manufacturing report was released. It came in at 49.5, well below the 51.4 reading expected and the 51.7 reading and was the lowest reading since July 2009. Note that when the index is below 50, it indicates economic contraction. The actual production aspect of that number is skewed higher by the prices subcomponent, which was 55.

On Friday the Chicago Purchasing Managers index came in at 50.4, a slight miss of the expected 50.5: Chicago PMI. However, to sub-component readings makes this report somewhat disastrous. The prices paid index jumped up to 65 - a 16-month high - and the new orders index plunged to 45.3, the lowest reading since June 2009. Both the ISM and the Chicago PMI reports reinforce the view that the economy is slipping into an inflationary recession mode.

Last week also the Government released its durable goods order report for October. While it showed that the September to October level was flat (unchanged), the revision for the September report was revised lower. If you look at the numbers on a quarterly basis for 2012, they show quarter-to-quarter contraction for the first three quarters of 2012, before and after inflation is factored in. This means that unit orders have been in decline for all of 2012, despite the bright picture of the economy being promoted in the mainstream media.

Please note that durable goods are the "stuff" people buy to use in their homes that are supposed to last a long time. If housing really is what it is supposed to be, then the durable goods order metric should be increasing, not in decline.

One last note, the Treasury will hit the debt ceiling limit at its bi-monthly bond auction next week. Even assuming that Geithner once again taps into the various custodial pools of capital, like Federal pension money and Social Security, in order to keep the Government funded until Congress gets around to raising the debt ceiling limit again, it's very safe to assume that the Fed will have to significantly expand its money printing program in order to help fund the new flood of Government debt without driving up interest rates.

Higher interest rates would completely undermine any pretenses of growth in our economy. Because of the weakening economy and increased debt funding requirements of the Government, the Fed will have to step-up its amount of QE.

The only way to protect your wealth from this is to move your paper investments into physical gold and silver. Paper investments include any precious metals ETFs, as they are just another derivative form of a paper promise. Everyone who "gets it" should not be intimidated by price action and should take advantage of accumulating this with both hands.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.