Michael Pento continues:

“However, the somewhat better news on manufacturing came on the back of a U.S. consumer that has fully reverted to their borrowing and consuming ways.  Spending increased by 0.8% in February, the most in seven months but incomes only increased by 0.2%.  More importantly, real disposable income declined by 0.1%, which was the third such decrease in the last four months.  As a consequence, the savings rate fell out of bed to 3.7% from 4.3%, which was the lowest level since August 2009.

Therefore, the small rebound in manufacturing and huge increase in spending by the consumer is ersatz and unsustainable in nature.  The problem is that consumer debt has now started to increase once again, at a time when it desperately needs to contract.

The Europeans have taken a small step towards addressing their problems....

Continue reading the Michael Pento piece below...


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“They are trying desperately to embrace fiscal austerity, but in the meantime have also been dealt a huge dose of monetary madness from the ECB.  The consequence of taking only a half-hearted dose of the appropriate medicine for your economy won’t fix the problem.

Evidence for this fact was displayed from the Eurozone manufacturing PMI released this week.  It fell to 47.7 in March; declining in Spain, France and even Germany.  But perhaps most troubling was the fact that the unemployment rate in the Euro-zone rose in February to 10.8%, the highest level in nearly 15 years.

However, household inflation in the Eurozone was 2.6% in March, which is well above the ECB’s 2% target rate.  By only addressing their fiscal imbalances, Europeans will have to battle a recession that is accompanied by inflation instead of having the amelioration provided from falling prices.

In contrast to Europe, the U.S. hasn’t moved one inch towards fixing the crumbling foundation of its fiscal imbalances.  And both the Fed and the ECB cling to the belief that borrowing and printing money is the best path to prosperity.

What Messrs Bernanke and Draghi don’t know or refuse to acknowledge is that this is a balance sheet recession in America and Europe.  Therefore, creating copious amounts of new money will not increase productivity or grow the labor force.  It will, however, continue to provide a tremendous headwind to the economy due to rising inflation.

Interest rates have been at rock bottom for the last three years.  They were taken to zero percent by printing money (inflation) and not by a superfluous amount of savings evident in the economy.  Therefore, these low rates have both a positive and extremely negative effect on GDP.  Low interest rates do provide some temporary relief on debt service payments.

That’s great for the heavily debt-laden consumer and government; while they last.  But those same artificial low rates punish savers while destroying the purchasing power of the dollar.  Since interest rates are already at near zero, there will not be any further relief on debt service from continuing to print money.  But there will be a pernicious increase in the level of inflation and rate of currency destruction.

The Fed’s next meeting will be at the end of April and the following meeting won’t be until June.  Until then, traders are anxiously waiting for more QE, while the economy braces for yet more stagflation.  If Mr. Bernanke takes a pass this month on further QE, commodity prices and the stock market will hopefully undergo a healthy pullback.

However, if the Fed prepares to launch another round of quantitative counterfeiting, the gold market will take off like a rocket, while the economy sinks further into the stagflation abyss.”

To Learn more about Michael Pento’s financial management services CLICK HERE. 

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

Eric King

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