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Dear Helen,
If the recent slew of bad economic news coming out of the
U.S. hasn't convinced you that the economy stinks, then it's
time to wake up and smell the coffee. Because ...
All the recent talk about a
double-dip
recession is nothing more than
pure B.S.
Why? Because the U.S. economy ...
A. Never emerged from a recession. Period.
Quite to the contrary, in reality ...
B. The economy is already in a depression.
The problem is that no one wants to admit it. Certainly not
in Washington. Not on Wall Street either. And, unfortunately,
not even on Main Street.
But the fact of the matter is that in real terms, the
U.S. economy has already contracted more than it did during
the Great Depression.
I'll prove it to you in a minute. But before I do, here are
a few simple facts that also show you that the economy is
either rivaling the depths of the 1930s, or is already in
worse shape ...
First, the true unemployment rate in this country
is at least 22%. Not the 9.5% mythical figure
Washington is reporting.
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You see, Washington plays with the unemployment number. The
figure they report every month is what they call the
"official" unemployment rate. But it includes only those ages
16 or older who are not currently employed, but are able and
available to work, and "actively seeking work."
The problem: Washington conveniently leaves out people who
are working part-time, people whose hours have been
dramatically cut, and "discouraged" workers — those who are
ready, willing and able to work — but have essentially given
up looking for a job because they can't find one.
Add these workers into the mix and you have an unemployment
rate of 22.7% — more than double the so-called official number
and almost as bad as the Great Depression of the 1930s.
And that's just a nationwide average. In places like
Detroit, Los Angeles, Allentown, Pa. and other urban areas,
the real unemployment rate is as high as 40%, far worse than
during the Great Depression.
 |
| If
you include part-time and "discouraged" workers,
the actual national unemployment rate is 22.7% —
almost as bad as the Great Depression.
| |
Second, from its 1925 peak, the median
home price in the U.S. fell 12.57% into a bottom in 1932.
Compare that to the 31% decline since the property peak in
2007.
Third, in 1929, total U.S. debt as a
percent of GDP stood at roughly 290%. Today, it's approaching
380%, and growing.
Put another way, it now takes $3.80 to produce $1 of GDP,
compared to $2.90 during the Great Depression. I don't know
about you, but to me, that's not real economic growth. It's
debt-riddled growth.
Moreover, when debt is growing so rapidly, there is simply
no way the economy can produce the same amount of
unencumbered goods and services than it did just a
decade ago.
Fourth, U.S. high-yield corporate bond
default rates last year hit their highest level since the
Great Depression. And although they've come down a bit since
then, there's no doubt in my mind that corporate bond default
rates are going to surge dramatically higher in the months
ahead.
Fifth, total corporate and personal
bankruptcy filings each year in the U.S. are now more than
double the number of filings that occurred during the entire
decade of the Great Depression.
Sure, bankruptcy laws have changed dramatically, making it
far easier for individual and corporations to stave off
creditors, with far less stigma. But is that a good thing? Or
does it merely make things look better on the surface?
Either way, I repeat, we're talking bankruptcy filings in a
single year that are now more than double the filings that
occurred in the entire Great Depression.
Now, for the real proof the
economy
is already in a
Depression.
Back in the 1930s — and all the way through 1971 — the U.S.
monetary system was on a gold standard. In 1933, for instance,
$1 of GDP was equal to 1/35 of an ounce of gold.
In 1971, it was equal to about 1/42 of an ounce of gold.
Then, Richard Nixon severed the link between the dollar and
gold once and for all.
Don't get me wrong. I do not advocate a gold standard.
Never have, never will. But you simply must understand that
just because the world is no longer functioning on a gold
standard — doesn't mean you cannot — or should not measure
values in terms of gold.
As a matter of fact, you should. Measuring values in terms
of an asset that represents the real value of money is the
only real way to measure anything today. That's even truer
these days than ever before because paper currencies are so
fickle and volatile in nature.
So now, let's take a look at our country's GDP in terms of
the amount of gold it can buy.
And let's do a simple comparison of 1932, the depths of the
Great Depression ... with 1971, just before the gold standard
was abolished ... the year 2000, the peak of the tech bubble
... the year 2007, the real estate peak ... and the latest GDP
data.
Let's see what's really happening — in terms of how much
gold the country's GDP can purchase at those different points
in time.
Here's the summary, and a chart to go along with it ...
 In
1932, our country's GDP was worth 2.8 billion ounces of
gold.
In
1971, it was worth 27.74 billion ounces of gold. Put another
way, our country's GDP was almost ten times what it was in
1932.
In
2000, our country's GDP would purchase 34.54 billion ounces of
gold.
At
year-end 2007, it was worth only 16.87 billion ounces of
gold.
As
of March 31, 2010, our country's GDP would purchase a mere
13.08 billion ounces of gold.
That's a 22.47% decline in three years, since the peak of
the housing bubble ... and a whopping 62.13% decline since the
end of the year 2000.
If that's not a contraction, if that's not a depression in
real terms,
I don't know what is.
Of course, almost everyone will argue with me about the
above analysis, their main objection being: I'm just viewing
the economy in terms of gold, and that the contraction I speak
of is merely because the price of gold has gone through the
roof.
But I ask you the following questions, and I'll let you
answer them ...
If gold isn't real money, then what is? Paper money?
If so, then why does paper money — in almost all cases —
buy you less than it did a couple of years ago ... five years
ago ... ten years ago ... fifty years ago?
Why does a barrel of oil cost nearly eight times more than
it did just ten years ago, when in gold terms, the price of
oil is the same?
For the economy's current GDP to equal the same gold
purchasing power it had in the year 2000 — 34.54 billion
ounces of gold — the price of gold would have to plummet by
more than 64.5%.
What are the chances that's going to happen, when the
Federal Reserve recently stated it would print as much as $5
trillion more in funny money to try and turn the economy
around, by
papering over the mess?
Folks, the U.S. economy is already in a depression. Deep in
a depression. And as I said at the outset, almost no one
realizes it.
Hopefully, you do. And hopefully, you're taking the steps
necessary to protect your wealth, so that it does not suffer
the same devastating losses in real terms.
And further, so that you have a solid plan to profit from
what almost no one else recognizes.
Best wishes,
Larry
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