Another Recession?

With today’s news that U.S. economic growth has ground to a near-halt in the first half of 2011, it’s looking more than ever as if the so-called recovery was more wishful thinking than a solid comeback. Other pundits agree. As reported in BeforeItsNews.com:

“The unemployment rate remains high, housing prices are slipping into a secondary decline, consumer and business spending is slowing, while gas and food prices remain high, eating up more than 20% of consumers wages and salaries. Add on top of these factors the likelihood of a Greek debt default [see here (1) and here (2)], a slowdown in the eurozone [see here (3)], a weaker dollar [see here (4)] and Washington locked in debate over the debt ceiling [see below (5 - 10)] — well, the list of risks far outweigh the positives. It doesn’t take an economist to figure out that any one of these factors could send us tumbling into a second recession.”

Despite those grim realities, as the above referenced article continues, Wall Street and the mainstream media seem determined to put an optimistic spin on the situation.

The U.S. House GOP finally managed today to get the plan to raise the debt ceiling put forth by its own leader, House Speaker John Boehner, passed. But some observers suspect the real purpose of all that drama was simply to get the U.S. public and investors used to the idea that U.S. debt is likely to be downgraded, regardless of what happens to the debt ceiling.

In a Washington Post opinion piece, Robert J. Samuelson draws parallels between today’s economic state and the “depression within a depression” of the late 1930s. Then, as now, Samuelson writes:

“[C]ommodity prices (grains, minerals) were rising rapidly; fears of inflation grew. Then as now, the federal budget deficit was criticized as too large. Then as now, the president was widely perceived as being anti-business.”

There also are significant differences between the two time periods—the U.S. Federal Reserve in 1936-37 undertook money- and credit-tightening measures in contrast to the easy-money policies of the modern Fed.

“Still, the parallels are unsettling,” Samuelson writes, “because government officials then didn't intend to trigger a slump. As their errors became clear, policies changed.”

Government officials never intend their actions to make matters so much worse. For the most part, they take action in the belief that they know how to fix things and that “this time it will be different.” And we-the-taxpayers always end up paying the price for their unintended consequences, every time. The legacy of decades of fiscal and monetary policy that culminated in the 2008 crash still exists—unsustainable levels of government and private debt, a world reserve currency that is bleeding value, real estate and credit bubbles in many nations, dangerously high price inflation in some of the world’s largest economies.

Despite the rosy scenario put forth by politicians, government economists and the media, the fundamentals tell a different story. That’s why we at WealthCycles take all the drama and predictions with a few pounds of salt and remind ourselves why we’ve chosen to put our faith and our investments into the only true store of value that has prevailed through recessions, depressions, hyperinflations and busts throughout history.