What’s Going on With the US Economy?

If you’ve been wondering what’s been going on with the US economy today, you’re not alone. On the one hand, we’re being told by the Biden administration that the US economy is the strongest it’s ever been, with high-flying stock markets, a strong workforce, and continued economic growth.

On the other hand, we’re seeing record layoffs, declines in manufacturing activity, and rising levels of debt. Households may be continuing to spend, but they’re running out of money, forced to put everything on credit cards, which are increasingly not being paid off.

So which is it? Is the economy actually in great shape, or is teetering closer and closer to recession?

The Focus on Stock Markets

A lot of people like to look at stock markets as an indicator of the health of the economy, assuming that if stock markets are healthy then everything is alright with the economy. What they’re forgetting is that stock markets aren’t really indicative of economic health, and in fact they’re a lagging indicator.

Ahead of the 2008 financial crisis, for instance, stock markets peaked in October 2007, a mere two months before the recession began in December 2007. When the dotcom bubble collapsed, the S&P 500 peaked in March 2000 and was only seven points below that peak in September 2000, before starting to decline ahead of the recession that began in March 2001.

So the fact that stock markets are at all-time highs isn’t necessarily indicative of an economy that is doing well. Once this bull run begins to falter, it could end up showing that, just like in the past, these high-flying stock markets are a warning that recession could soon be following.

The Reality Behind Jobs Numbers

Anyone who took the most recent jobs report at face value would have thought that the economy was running at full strength, with the over 350,000 added jobs being far more than most analysts expected. But how accurate are those numbers?

For one thing, it’s well known that the establishment survey can count a single worker multiple times if that worker works more than one job. And with many more Americans today working multiple jobs to make ends meet, that can be reflected as more jobs being created and therefore a stronger, growing economy.

In reality, what is happening is that the economy is so weak that people have to work multiple jobs to get by, so that even if there are more jobs being worked, they’re being worked by a smaller number of people.

For another thing, the establishment survey also doesn’t differentiate between full-time and part-time jobs. So if 600,000 40-hour a week jobs are lost, but 900,000 20-hour a week jobs are gained, that shows up as a gain of 300,000 jobs.

That then gets touted as a massive win for the economy and a sign that the economy is strong and growing. But in reality, it means the economy is contracting because fewer hours are being worked.

There are numerous analyses of these differences between the establishment survey and the household survey that go into the nitty gritty behind the headline numbers. And once you begin to pick apart the data and see what’s actually going on, those numbers don’t look nearly as rosy as the government would have you believe.

GDP and Economic Growth

Another problem with the narrative of the growing economy is that of increasing gross domestic product (GDP). The problem with that is that GDP includes government spending in its calculations.

By definition, government spending isn’t productive. In order for the government to spend money, it has to take it from the private sector, preventing that money from being used by the private sector to grow business.

The government either taxes money directly from the private sector, or takes it indirectly through borrowing. Every dollar the government borrows, i.e. every dollar given by investors to the government to buy bonds, is a dollar that isn’t given to businesses to purchase their bonds or stock.

What we saw last year is that, yes, GDP went up, but government debt went up even more. And if GDP is going up by $600 billion but the national debt is going up by $1.3 trillion, guess what that means?

It means that private sector spending had to decrease by $700 billion, which means that the private sector is actually shrinking, not expanding. So the rosy GDP numbers are actually concealing the fact that economic activity is actually slowing, and it’s only debt-fueled government spending that is still giving the illusion of economic growth.

When Will the Curtain Drop?

At some point the facade of a healthy economy is going to come crashing down. And when it does, and the reality of the situation becomes apparent, we could end up seeing another 2008-style financial crisis.

Remember, stock markets are always lagging indicators when it comes to diagnosing recessions. By the time the recession starts, markets may very well be on their way down. And by the time the recession really gets bad, like it did in 2008, losses may end up being very severe.

If you’re aware of what’s going on and eager to protect your savings and investments against the risk of recession, you’re not alone. Many Americans have already started to try to safeguard their finances with precious metals like gold and silver.

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