Global Macro Analysis – Not Good!

Download 2010-1-29 JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS COMMENTARY NUMBER 274 State of the Real World, Fourth-Quarter GDP 

The State of the Real World: No Economic Boom in the United States; No Happy Deficit Outlook. As discussed in recent writings, the U.S. economy is headed into an intensified downturn/double-dip depression (see Commentary No. 268), with significant risk this year for a massive sell-off in the U.S. dollar and the onset/early stages of a hyperinflation (see Hyperinflation, Commentary No. 263). Some major themes for the year ahead, which will be discussed in the pending newsletter (see Note at end of this Commentary), include:


– Double-Dip/Intensified Depression. The annual downturn in inflation-adjusted M3 appears to have continued and deepened in January, showing an intensified signal for imminent economic downturn. Popularly followed series such as employment/unemployment, retail sales, housing, etc. should show intensified deterioration within the next couple months. President Obama’s recent proposals to stimulate the economy will have limited impact.


– Federal Deficit Set to Explode.  The Congressional Budget Office estimates 2010 federal deficit at $1.35 trillion, virtually unchanged from 2009. Such assumes 2% GDP growth in 2010, which is not going to happen. President Obama’s recent deficit limiting proposals will have minimal impact. Intensifying economic contraction not only blows apart federal-deficit estimates, but it does the same to the fiscal planning for most states, projected banking system stability, etc.


– Fed Increasingly Likely to Monetize Debt. The political/fiscal problems from intensifying economic contraction and worse-than-projected borrowing needs for the U.S. Treasury likely will trigger increasing flight from the U.S. dollar. At such time as that moves to a panicked level, and U.S. Treasuries increasingly are dumped or otherwise shunned, the Fed will have little choice but to monetize the Treasury debt, becoming the buyer of last resort for Treasuries. Those circumstances should lead to mounting inflation woes and flight-to-safety outside the U.S. dollar, particularly to hard assets such as gold and silver, and to currencies such as the Canadian dollar, the Australian dollar and the Swiss franc.

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