No recovery in sight

No recovery in sight

With the US economy convulsing in its sharpest contraction since 1958. down 6.1%, the Fed now seems to be sitting on the side lines. In its latest statement, the Fed said the economic outlook had improved "modestly" but that economic activity was "likely to remain weak for a time". With the Fed printing money to buy Treasurys, mortgage-backed securities and housing agency debt, some economists are predicting the US economy will return to growth with a big decline in inventories and improved consumer spending.

But as Peter Schiff from Euro Pacific Capital says, there is nothing to celebrate. Any recovery is nowhere in sight.

Schiff says: "With the collapse of the housing and stock markets, the surge in unemployment, and the fall in wages, the only way that consumers can spend more is if they reduce savings or increase borrowing. However, our economy collapsed precisely because we borrowed and spent too much to begin with. The economy will not find a solid foundation unless consumers decide to live within their means. Sadly that message is not getting out."

With the US Bureau of Labor Statistics reporting that there are 18 cities with jobless rates of at least 15%, recovery looks like it's at least two years down the track. In any case, US consumer spending and incomes slipped back in March, suggesting any recovery was tentative and fragile.

Those green shoots are starting to look like weeds.


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