STAFF NEWS & ANALYSIS
Morning in America or Darkness at Noon?
By Staff News & Analysis - February 26, 2013

Morning in America? U.S. economy poised to accelerate substantially by the end of the year, even if Washington goes forward with $85 billion in budget cuts scheduled to begin on Friday. Economists polled by Reuters this month predicted the economy will expand at a 2.8 percent annual rate in the fourth quarter, up from the 1.8 percent rate expected in the first quarter, when higher tax rates enacted in January are expected to hit growth temporarily. If the forecasters are right, the fourth-quarter performance will mark a big improvement from the average annual rate of 2.1 percent clocked since the end of the recession. Better still, most analysts expect further acceleration in 2014. – Reuters

Dominant Social Theme: Lawdy, let the good times roll.

Free-Market Analysis: In a world of monopoly central banking, words have lost their meaning. A "recovery" means that more paper money re-inflates enterprises that might ordinarily be considered bankrupt.

Failing firms receive a new lease on life because the powers-that-be won't let them die. Economic trends and whole industries that the Invisible Hand would select for failure are shielded from the consequences of their incompetence.

And so it is, unfortunately, with this recovery. It is not a normal recovery in any sense of the word. The dollar reserve currency basically died in 2007-2008. Ben Bernanke had to ship tens of trillions overseas to prop up failing banks around the world in order to resuscitate the corpse. Now it is neither dead nor alive.

This hasn't stopped various economic and journalistic pundits from proclaiming that various elements of Western economies are springing fully back to life. Infamous green shoots were discovered as long ago as 2009, and today the rhetoric has advanced aggressively. Here's more from the article:

Economists have predicted for several years that stronger growth lies just a few quarters away. As 12 million unemployed workers can attest, that hasn't panned out. Yet there are several reasons to think this time really is different.

First, a pickup in hiring last year has helped families earn more money. Economists at Goldman Sachs estimate wages and salaries grew by almost 3 percent in the 12 months through December, even when factoring out inflation and unusual payments made to help workers avoid January's tax increase. That's about twice the growth rates clocked in mid-2012, and might explain why higher taxes appeared to take only a small bite out of retail sales last month.

Second, families may be turning a corner in their long struggle to reduce their debt burden. A housing bubble that burst in 2006 left Americans awash in debts taken on during the boom. It also set off panic on Wall Street. Many analysts believe the bust left behind scars that made the recovery weaker than a normal rebound. Even rock-bottom interest rates didn't persuade debt-shy consumers to spend more, while banks were hesitant to lend.

But slowly, households have reduced their debts by either defaulting or taking out fewer loans as they pay off existing ones. At the same time, incomes have grown and the Federal Reserve has kept borrowing costs exceptionally low. By the third quarter of last year, U.S. household debt payments were 10.6 percent of their after-tax income, the lowest ratio since 1983 and down from a record high 14.1 percent in late 2007. A wider measure of financial obligations that includes rent has also slowly declined and stands at its lowest since the mid-1980s.

The improvement in household finances means underlying momentum in the economy might continue to gather. Increased home construction should boost demand for materials made by factories, which are also getting help from a boom in U.S. oil and gas production.

All told, this year's austerity-bound growth should morph into a beefier rate of at least 3.3 percent in 2014, according to respected forecasting firm Macroeconomic Advisers. That would be the fastest pace in a decade.

What this article considers "growth," we would argue is a kind of monetary manipulation. And because so much money has been printed in a desperate effort to re-stimulate the economy, any growth that does occur will be accompanied by significant price inflation.

In an accompanying article, we analyze statements made by Ellen Brown regarding the non-circulation of bank reserves. But simple observation tells us that some of the trillions that the Federal Reserve has printed and offered to US banks in particular have found their way into domestic stock markets that have doubled since their lows some five years ago.

There is no question that monetary debasement – for that is what it is – inflates assets and makes people feel richer. And as assets reflate, the economy itself is seen as growing healthier. But in fact, this is not the case. A modern, reflated economy is still a distorted one with plenty of dysfunctional industries and manufacturing capacity.

It is not possible to confirm what modern societies would look like without a century's worth of monetary stimulation but chances are the US's military-industrial complex and consumer society would not have reached their current exaggerated proportions.

Additionally, we have speculated that societies not subject to rampant monetary inflation would be more agrarian, less urban and generally more self-sufficient. The political system and, generally, the patronage system of industrial spoils that it has encouraged would be less powerful as well.

All the various maladies of modern society would likely be less pronounced because much of what constitutes modern society has been specially shaped by Money Power to be dysfunctional. The goal is always world government and nation-states must suffer from chaos if they are to be made more malleable, and therefore more amenable to global governance.

We are not really speaking of a recovery here so much as a rhetorical exercise in wishful thinking. The masses are to be palliated by this sort of "happy talk" so that social unrest does not get out of hand. But this era is not like the 1930s; the top elites have lost their monopoly stranglehold on dominant social themes.

After Thoughts

People are waking up to the madness around them, and beginning to contemplate alternatives. It is this gradual enlightenment that, in our view, constitutes the REAL recovery – not the massaging of statistically questionable data.

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