Economy Forecast for 2013

The U.S. has faced several tests during this past year. Every time reminding us that the can we are kicking along the road eventually is going to catch up and crush us. This is also a time to do our homework and shut down the noise we hear in the media about a strong recovery but also be skeptics about a soon crash, remember to raise suspicion every time we hear good news and ask ourselves who is benefiting from this assumptions. With that said I will share my personal opinion on where the economy is going and what is it that we are facing right now.

 

Even though I remain bearish on the U.S. economy in the long term, I see the economy limping during 2013. In 1979 the fiat currency was introduced to the United States liberating the dollar from the actual linkage to physical gold as a measurement of power spending making the dollar the official international currency.

 

History has proved along the years that with this regulations in place, countries tend to spend more than what they can actually back up. What makes us different from those times in history is our new sketchy accounting tactics applied. Wall Street has proved that if unsupervised it can create great damage to the economy, remember 2008? As the old Wall St. proverb says “the two strongest factors driving the markets is fear and greed”.

 

Wall Street’s scheme cost the U.S. trillions of dollars in recovery so that big investment banks don’t collapse. The Feds spent more money saving the banks than WWII and Iraq’s war spending combined. This “saving” created a ginormous hole on the Fed’s wallet forcing the U.S. to increase it’s debt to 16 Trillion dollars, YES with a T. Since investment banks were being punished and blamed at the time, the Fed’s were forced to intervene on the process of recovery and have been doing so for quite a while now. Many may argue the Fed’s are doing a splendid job containing the situation, but remember the Feds should be regulating, creating new bills and laws on the first place, not playing heroes.

 

Since then, thanks to our fiat regulation, the printing of new money (remember not being backed up by the gold we hold) to ease the situation has become the only answer of easement. As we remember chairman Bernanke introduced the term quantitative easing ,as I mentioned before on my past article this is a fancy word for “printing money”, buying back U.S. treasuries to stabilize the markets. We have to ask ourselves, if we are printing new money where is the solution to reducing our debt? Aren’t we just inflating the economy with a surplus of money we don’t even have the back up for? the answer is YES we are just kicking the can along the road to avoid any major economical impact.

 

The pressure to jump the fiscal cliff forced the government to come with a poorly meditated solution to the crisis creating the baby cliff now called the “Sequester” program aimed to take place March 1st creating a budget cut of 1.2 trillion over the next 10 years, that is roughly 10% of our national debt. Part of the Sequester happened because the Simpson-Bowles super committee could not come to an agreement, a division inside the house mainly controlled by ego is stopping major tax cuts and spending cuts bills to pass.

 

While we let the white house fight over power of decision we need to concentrate on GDP, the reports announced past week showed the GDP decreased by 0.1% “this primarily reflected negative contributions from private inventory investment, federal government spending, and exports that were partly offset by positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment.  Imports, which are a subtraction in the calculation of GDP, decreased” according to www.bea.gov

 

As the BEA reflects the GDP was offset by personal consumption expenditures, this created an increase in retail companies reporting strong quarters and a boost in confidence over spending, but as I mentioned always be suspicious. If we take a look at the consumer debt statistics we can show an increase in credit spending and debt increased by individual

Consumer_Credit_Trillions

The rise in gas prices and the social security payroll tax at the beginning of 2013 is also reflected on quarterly reports and it’s expected to be reflected on consumer spending for the next report.

Unemployment:

The average number of people seeking help over the past four weeks totaled 360,750, up 8,000 from the four-week average the previous week. Economists prefer to look at the four-week average to smooth out the impact of short-term blips that can be caused by weather and other special events. Previous number of reduction in jobless claims can be debated some may argue this is caused by the increase of aging men and women returning to the workforce due to their debts and poor social security, but some may assume is for the creation of jobs in the economy, there are countless factors economists have put into consideration to debate this topic. I prefer to leave that discussion for another time.

 

Housing:

This part of the economy in the U.S. is expected to recover from its recession, number of individuals are now owning single-family housing instead of renting apartment complexes.

SFStartsImage

This is great news, more people are expected to buy single-family houses thus creating new employment possibilities making housing one of the primary drivers on the economy in 2013. As I mentioned on the beginning there is alarming data and we can not solely depend on the government as a helping hand every time we fall. I believe we are not going to see major changes affecting dramatically our economy thanks to the help from government but keep in mind this is just creating a bigger ticking bomb.

 

 

 

Categories: Markets

Francisco

Frank is the Founder of Wall Street College and a dedicated stock investor. Having an enormous passion for Investing, Stocks, and Success, Frank decided to start WallStCollege.com with the purpose of educating people on how to put their money to work, teach them how to invest in stocks, and how to always strive for Financial Freedom.

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