WASHINGTON, February 2, 2013 ― After hundreds of billions of dollars in stimulus spending and months of the Federal Reserve’s zero interest rate policy (ZIRP), the US economy shrank in the fourth quarter of 2012.
The fourth quarter has historically been the bump for our economy, but after seeming to be on an upward trajectory, the economy shrank last quarter by 0.1 percent. Some politicians are claiming that this is “the best contraction you will ever see,” citing reductions in defense spending as the driver for the contraction while the private sector supposedly shows better than expected strength.
But what happens when an additional 1.6 percent of our GDP is confiscated by the federal government in the new year? $264 billion is the single largest one-year tax increase in our history. Obama campaigned on forcing the rich to pay their fair share, but the $160 billion in payroll taxes, coupled with the $42 billion in Obamacare taxes blindsided most Americans who thought they were safe from tax increases.
By the middle of January, social media were exploding as the blissfully unaware suddenly realized that even they were seeing smaller paychecks. An person making $50,000 is taking home roughly $1,500 less this year than last.
It is only going to get worse. The increases we are seeing now are based upon the $900 billion Obamacare was supposed to cost. The congressional budget office has made several revisions to that estimate, which currently sits at $2.8 trillion.
Estimates are that health insurance premiums will rise by as much as 75 percent by January 2014.
It would appear that giving vast amounts of money to billionaires is not having the effect on the economy that it was supposed to. It is, however having a dramatic effect on the Dow, which recently topped 14,000, matching a level not seen since 2007.
Unfortunately, stock market performance is not an indicator of economic well-being to anyone except the mainstream media. The best performing stock market in the last decade was, by far, the Zimbabwe stock market.
Where then do we expect growth come from? In a word, inflation.
The money being printing by the Federal Reserve helps provide the illusion of growth. As the Fed continues to devalue our currency, the prices of goods and services rise, producing an increase in dollar GDP. This is a big part of the reason for an inflationary target of 2 percent by the fed. It gives a “free” GDP growth of 2 percent without any real growth – that is, the economy doesn’t produce more goods and services, but what it does produce costs 2 percent more, and national income rises by 2 percent.
Now if only inflation were the 2 percent uncle Sam reports, instead of the 7 or 8 percent it would be had they not recently changed the manner in which inflation is calculated to make prices seem more stable.
So how promising is a contraction of 0.1 percent even after the inflationary false growth?
In the words of Head Euro-Zone Finance Minister Jean-Claude Junker, “When it becomes serious, you have to lie.”
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