Unofficial statistics point to double-dip US recession and hyperinflation

Posted on 08 May 2011 with 5 comments from readers

For some years ShadowStats has been producing statistical data that appears to track the real economy far more closely than the official statistics which are, let us say, adjusted to deliver the rosiest of views.

In an interview with The Gold Report last week ShadowStats editor John Williams spelt out his own reasoning for why the US is heading back into recession and then into hyperinflation. He was first very critical about mainstream economic reporting with all the recent gains in retail sales actually down to inflation:

‘Are we really seeing a surge in retail sales? If so, you should be seeing growth in consumer income or consumer borrowing – but we’re not seeing that. The consumer is strapped. An average consumer’s income cannot keep up with inflation. The recent credit crisis also constrained consumer credit.

‘Without significant growth in credit or a big pick-up in consumer income, there’s no way the consumer can sustain positive economic growth or personal consumption, which is more than 70 per cent of the GDP.’

Housing double-dip

Housing is also still deep in depression: ‘Housing starts have never been this low. Right now, they are running around 500,000 a year. We’re at the lowest levels since World War II – down 75 per cent from 2006 – and it’s getting worse. I mean the bottom bouncing has turned down again. We’re already seeing a second dip in the housing industry. There’s been no recovery there.’

Unemployment is also much higher than the official statistics proclaim, although that is back up to nine per cent, not so far off the lowest point in the recession. The economic stimulus and money printing is directly to blame:

‘Today, the weak dollar has spiked oil prices. Higher oil prices are driving gasoline prices higher – the average person is paying a lot more per gallon of gas. For those who can’t make ends meet, they cut back in other areas. You also have higher food prices.’

Yet Federal Reserve chairman Ben Bernanke specifically denied a causal link between higher oil and food prices and monetary policy last week at his first-ever press conference.

Inflation expectations

John Williams says: ‘I think the expectation of rising inflation is beginning to sink in. Given another month or two, I think you’ll find all of a sudden the economists making projections will start lowering their economic forecasts.’

That takes us to a double-dip recession in the second half: ‘We’re really seeing reintensification of the downturn that began in 2007. Although it’s not obvious in the headline numbers of the popular media, you’ll find that September/October 2010 is when the housing market started to turn down again. That is beginning to intensify. We’ll see how the retail sales look when they’re revised. When all the dust settles, I think you’ll see that the economy did start to turn down again in latter 2010.’

In order to try to exit this double-dip recession the Fed will repeat and compound its earlier monetary policy errors by printing money, in the mistaken belief that the alternative of deflationary collapse would be much worse. Hyperinflation and the collapse of the US bond market will follow with a real panic into precious metals that will soar much higher in price.

US election cycle

How long will this take to unfold? ArabianMoney is mindful of the US political cycle and the presidential election late next year. Incumbent Barrack Obama just got a huge boost in popularity from shooting Osama bin Laden.

But getting US official statistics to continue to feign an economic recovery might be a taller order. The problem is that the excess money supply is already in the system and the idea that it can be painlessly neutralized is laughable, ask those who have suffered in the US housing crash what a credit squeeze meant to them.

Could the Fed pull back the throttle after the presidential election of 2012? Or will inflation be spiralling out of control by then?

For countries with massive debts hyperinflation is a solution but it comes at a considerable price to consumers and savers. If you want to get US debt levels back to ground zero this is one route, and John Williams contends it is the path that the Fed has already chosen.

This has enormous implications for investors, which is why websites like this keep on coming back to it. But for our best advice and actionable investment ideas you should read the ArabianMoney newsletter each month (sign-up here).