Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench
In the same category

Green Shoots of a US Recovery?

IMG Auteur
Published : November 13th, 2012
529 words - Reading time : 1 - 2 minutes
( 1 vote, 4/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
FOLLOW : Main Street, Recovery
Category : Editorials

 

 

 

 

There is growing hope in some quarters that economic recovery is at last under way in the USA. Is this just an election-inspired pick-up in sentiment, now rapidly vanishing, or do we take it more seriously; and if it really is recovery, what are the inflationary consequences?

Some observers point to house prices, which show signs of having turned the corner. The latest Case-Shiller data shows that house prices rose 8.5% between April and August; and single-family housing starts are up by 43% compared with last year. Rental yields, which have stimulated residential investment, are attractive compared with other alternatives, and average house prices down 30% from 2006 highs are a further incentive for buyers. And this is the key: housing is attractive as an asset on the basis that financial alternatives, bonds and equities, are demonstrably more expensive. Residential property is simply better than other alternatives.

Financial alternatives, such as government bonds and equities, have performed well over the last three years on the back of cheap money, which has flooded the markets courtesy of Mr Bernanke. Lucky investors are bound to question how much further these markets can run, now that we face the fiscal cliff and other uncertainties: hence why it might make sense to move money from Wall Street to Main Street. As well as residential property, high levels of personal and private sector debt suggest there will be other distressed assets available. Could this even extend to a pick-up in mergers and acquisitions?

What we are considering is essentially a money-flow question: how, why and when money parked in non-productive financial assets will migrate into the economy. This is already happening through unfunded government expenditure, which is distributed through the welfare system. However, the private sector is also under increasing pressure to do something, reflected in the fall in excess reserves held at the Fed by some $200bn over the last year. When this figure fails to increase in line with QE3's monthly injection, raw money is simply piling up on Wall Street, adding to pressure for it to be deployed into the real economy. And money going into the economy, to the extent it is not neutralised by the deflator, is simply recorded as growth in GDP.

Therefore, we will see statistical economic growth. This does not mean that we are about to see economic progress, which is an entirely different thing. Instead, we have a recipe for stagflation, loosely defined as a pick-up in prices without an accompanying increase in economic activity. This happened memorably in the 1970s, leading to a serious inflation problem by the end of that decade.

This time, there is a far larger overhang of cash circulating unproductively in Wall Street, ready to be spooked by a future trend of rising interest rates, which is inevitable from a zero base. The resulting stagflation will only be the precursor of higher inflation, and possibly even hyperinflation if not somehow nipped in the bud. Therefore, the inflationary consequences of what is mistakenly touted as signs of economic growth will probably be more serious than commonly thought, with the potential to be upon us more rapidly than anyone currently believes possible.

 

 

<< Previous article
Rate : Average note :4 (1 vote)
>> Next article
FinanceAndEconomics.org is the website of Alasdair Macleod, who has a background as a stockbroker, banker and economist. Alasdair is available for seminars, speeches and interviews. Please check on Services to get further detalils.
WebsiteSubscribe to his services
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
Gold Surges Another 7% This Week...
12 Febovertheedge
"Buyers should be getting into position to buy on the next dip." Gold is up something like 16% so far this year. Should'a bought when it wa...
Here We Go Again: Banks Are Impl...
12 Febsonora69
What is going to happen NEXT Monday? The Shanghai markets are closed all this week for the Lunar New Year. Monday morning ( or Sunday night U.S. t...
First Report since April, 2014
05 FebAndy_K1
Jason, One of your articles written way back is one of the reasons I started paying attention to silver and shortly thereafter started to ...
Something has Changed in Gold St...
06 Febneville
No nothing strange has happened in GOLD stocks....absolutely nothing.....The fact of the matter is that you byrne have been playing the man and...
The Revisionist Theory and Histo...
05 Febovertheedge
"The key is in the hand of the U.S. government. It is the same key that was used to lockthe U.S. Mint to silver in 1873, and to gold sixty years la...
First Report since April, 2014
05 FebS W.1
Here I was just 2 days ago thinking whatever happened to that evangelical silver guy. Low and behold up he springs, like some spirit from the g...
LBMA Silver “Price”: A Perfect S...
03 FebS W.
There is no doubt that the Comex can be used as a casino for those who want to trade Silver up/or down or maybe some just wish to take a small punt...
LBMA Silver “Price”: A Perfect S...
30 JanOzSILV1
Bron refuses to EVER admit this market is a Casino and the disconnect between Paper and Physical is a big clue to this
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Mining Company News
Lara Expl.(Cu-Zn-Au)LRA.V
Revised Resource Estimate Report Filed for Maravaia Copper Gold Deposit
CA$ 0.34+1.49%Trend Power :
Corporate news
Black HillsBKH
Black Hills reports 4Q loss
US$ 51.64-2.75%Trend Power :
Corporate news
Kinder Morgan(Oil)KMP
Midstream Companies Were above the 20-Day Moving Averages
US$ 102.03+1.98%Trend Power :
Corporate news
Kinder Morgan(Oil)KMP
Midstream Companies Were above the 20-Day Moving Averages
US$ 102.03+1.98%Trend Power :
Corporate news
Devon Energy(Ngas-Oil)DVN
Gasoline Inventories Rose Last Week despite Fall in Production
US$ 21.69+2.07%Trend Power :
Corporate news
United States Steel(Fe-Sn)X
U.S. Steel (X) States Ratification of Labor Agreements
US$ 7.40+8.35%Trend Power :
Corporate news
Black HillsBKH
4:34 pm Black Hills Corp beats by $0.04, misses on revs; guides FY16 EPS below consensus
US$ 51.64-2.75%Trend Power :
Corporate news
Black HillsBKH
Black Hills Corp. Reports 2015 Fourth Quarter and Full Year Results
US$ 51.64-2.75%Trend Power :
Corporate news
Transcanada PipelinesTRP.TO
TransCanada to Sign Substantial Agreement to Benefit Québec Economy
CA$ 48.65+0.16%Trend Power :
Corporate news
Devon Energy(Ngas-Oil)DVN
4Q15 Crude Oil Prices: Fallout for the Energy Sector and SPY
US$ 21.69+2.07%Trend Power :
Corporate news
Comments closed