Investing
Borrowing from the future turns off tomorrow’s investors By Ned Goodman
F
ederal Reserve Chairman, Ben Bernanke, spoke and investors cringed, causing stocks to decline and US Treasury bond yields to rise and the US dollar to rise sharply. All this because of Bernanke’s Machiavellian comments that the Federal Reserve has upgraded their “assessment of the economic recovery” saying that unemployment and inflation “may” fall or stay at the same levels until 2015. I say Machiavellian, based on Niccolo Machiavelli, author of The Prince, which has made his name synonymous with political machinations. In The Prince, Machiavelli wrote about the various techniques a successful politician must use if he is to achieve his political ends. This is mostly done without regard to the moral justification or truth of the means deployed. In The Prince, Machiavelli shows how a leader can best achieve his ends by justifying that the ends may be worthwhile, rarely worrying or speculating on the rightness or wrongness of the words or methods. It’s all based on the hopeful perspective that “the ends may justify the means.” The facts are that the US economy is still in the stagnant stage it has been in since the beginning of the fourth quarter of 2012, and the Chairman must know that the real inflation in the US today is not anywhere near 2%. According to the American Institute of Economic Research, as well as the Shadow Government Statistics, the inflation rate in the US is closer to 7% or 8%, not 2%. There are today approximately 47.5 million Americans who are enrolled to use the Supplemental Nutrition Assistance Program known as SNAP which replaced the legacy Food Stamps program in 2008. The soup kitchen line ups that were the vision of the 1929-30 Great Depression are now hidden by the electronic means. There are 23 million US households who can acquire food paid for by the government from 231,000 retailers who accept the government-paid-for special credit card for as many as 47.5 million people. Ten years ago there were approximately 20 million users of the free food program, less than 50% of those that require those beneficiaries of today. Since 2007 the ranks of SNAP users have almost doubled from 26.3 million to today’s 47.5 million peoples representing a 12.5% compound annual growth rate over the last five years of poor, hungry people or, almost 15% of the US population. The US economy is stagnant and is not growing and actually shrank in GDP in the fourth quarter of 2012 for the first time since 2009. Yes, shrank, as opposed to growth. Machiavelli would be impressed by Dr. Bernanke’s style and success of keeping the voters and politicians happy, and raising, not lowering, the value of the US dollar. The US economy is a bit like the Potemkin village of Russia which had an impressive façade designed to hide undesirable facts
Ned Goodman is President and Chief Executive Officer of Dundee Corporation
of its condition. GDP growth is high enough, unemployment is made to look low, and household wealth has the appearance of increasing. But a closer look reveals a more sobering reality. America’s growth is in large part being borrowed from the future. It’s like a company striving to make its annual sales projections by offering special incentives to its accounts to stock up now, before the year closes, instead of waiting to resupply at the normal time. The special incentives are the creation of very low interest rates. US consumers are consuming, but with borrowed money, as they use their mortgaged homes to maintain a US tax deductible living standard. Many economists are remaining sanguine because they see the US economy falling less fast and, as well, as a more rapidly increasing productivity than any other economy. Thus they think it can continue to be the most attractive place for foreigners to invest their money. They are wrong. CMJ
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September 2013 • Canadian Mining Journal |
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