Here's a little quiz for you. When was the last time we had a Federal Budget Deficit under $500 billion? In 2008 the budget deficit came in at a mere $438 billion. Since then we have been running deficits in excess of $1 trillion each year. In 2009 - $1.4 trillion, 2010 - $1.3 trillion, $1.5 trillion is written in for 2011 and now 2012 projects $1.1 trillion.
At the outset of 2009, increased deficit spending was said to be needed in order to stimulate the economy. That said, it is safe to conclude hundreds of billions more stimulus has been built into each subsequent year at least through 2012.
Yet, today, recovery is still uncertain. Were it not so, the Fed would not have pledged, last November, to buy $600 billion in Treasuries through June of 2011. That amounts to about $85 billion per month spent by the Fed to buy our own debt. Were there no other buyers? And, who will the buyers be once the program ends?
With $1 trillion plus annual deficits built into the budget through at least 2012, it looks to me like someone has to step in to continue what the Fed started. Even if we believe the deficit will be cut in half before this Presidential term is over, we're still talking hundreds of billions in deficits.
I just saw the statistic this morning that 16.2% of workers are still unemployed or underemployed. And let's not forget those who are now discouraged and have somehow escaped count once their unemployment benefits ran out. Throw in the self-employed who are out of work but not elligible to collect unemployment and the number of people still not earning full wages or any wages, is staggering.
In 2010, a record number of foreclosure filings were recorded. Weighing in at 2.9 million homes, that number is expected to rise in 2011.
Can we really look at data like this and say recovery is underway? Are we really just a few months away from completing our last round of quantitative easing/stimulus? Time always tells and time never lies.
The data suggests we are still a long way from recovery and more stimulus will be needed well beyond June when QE2 is supposed to come to an end. Should that be the case, inflation concerns heighten. Even today, Eric Bolen of Fox News and Fox Business Network, warns of inflation in clothing prices to set in this spring. Food prices are also inflating as are energy costs.
Historically, inflation and gold have walked hand in hand, as gold is used to hedge against it. This may explain why the predicted dip in gold prices, down to as low as $1225 per ounce, has yet to come to pass. Instead, gold bounced off the $1310 level and has quietly moved back near the $1400 an ounce level.
If stimulus does end, perhaps even more dire consequences await. If the Fed is currently printing enough money to, in effect, pay the bills, what happens when they stop? Who pays the bills then? Got gold?