The Economic Recovery Flop

Nothing special happened on Friday. The Dow lost 21 points. Gold gained 7, to bring it back over $1,200.

Here at The Daily Reckoning our annoying forecast is that gold will fall. So will stocks.

It’s annoying because 1) both have been going up…and 2) we still think you should go with gold anyway.

In short, what we’ve expected for the last six months hasn’t happened – another big drop in equity markets…another powerful wave of fear…and another sell-off in gold. But heck…we can wait. Things always seem to take a surprisingly long time to happen. Then, when they finally happen, you’re surprised at how fast they happen.

After 18 months and $2.5 trillion in counter-cyclical budget deficits, people have begun to realize that the ‘recovery’ is a flop. What they haven’t realized – yet – is why. But, it’s summer…no one is doing too much thinking now. Obama went for a vacation in Maine. Hillary married her daughter. Economists are fishing.

Well, we can hope!

Meanwhile, Fannie Mae posted its 12th straight quarterly loss. The Post Office is losing $3.5 billion in the third quarter. Social Security is in the red.

The New York Times reports:

Over all, the nation lost 131,000 jobs last month, according to the Department of Labor, which also said that June was far weaker than previously indicated.

Private employers added 71,000 jobs last month, but those figures were overtaken by the 143,000 cut as the Census wound down. It is also about half the number that economists say is needed to simply accommodate population growth, so the tepid job increases cannot begin to plug the hole created by the loss of more than eight million jobs during the recession. The unemployment rate, in fact, remained stuck at 9.5 percent in July.

Government figures released last week confirmed that the American economy slowed in the spring, and the latest jobs numbers suggested that the weakness continued into the early summer.

Some economists are talking about the risk of a “double dip” recession, and the political stakes for the Obama administration are rising as the midterm elections tick closer.

In remarks made while visiting Gelberg Signs, a small business in Washington, President Obama acknowledged the uneven pace of the economic revival.

“The road to recovery doesn’t follow a straight line,” he said. “Some sectors bounce back faster than others. So what we need to do is push forward. We can’t go backwards.”

Yes, dear reader…we are pushing forward. Obama, Geithner, Summers – none seems to have a very clear idea of what we are pushing forward towards. You may want to forward this message to them. For it is fairly clear to us: we’re headed into a long spell of de-leveraging. Not many jobs? Slow consumer spending? Falling house prices? Tumbling stock market? Zombie-like, shuffling economy? Get used to it! The US economy continues its Great Correction. More below…

Bill Bonner
for The Daily Reckoning