The band, Styx, had an album in 1980 called the “Grand Illusion."
Wall Street and the news media went hog wild with euphoria last week when the GDP (Gross Domestic Product) grew at 3.5% annualized rate. This is a grand deception. In reality, the majority of the 3.5% came not from consumer spending or increased factory production but from government spending. If you remove the government stimulus, you end up close to zero or even negative. Thus GDP = Gross Deception Picture.
Making matters worse, millions of dollars of the stimulus have ended up in the hands of fraudulent citizens. An example would be the “first time home buyer credit” of $8,000. The inspector general for the U.S. Treasury recently testified before Congress that 19,000 filers had NOT purchased a home that filed for the credit. Another 74,000 filers were not first-time homebuyers. This totals over $600 million going to fraud. Five hundred people under the age of 18, most notably a four-year-old, have also claimed the credit. To add further insult to injury, 53 employees of the IRS have been found to file illegal claims.
Our government is running a Ponzi scheme by artificially propping up the U.S. economy via racking up trillions in debt. When the patient is taken off of stimulus life support, it may get very ugly again. This is why I believe that this will not be a normal recession recovery and that we are likely entering a phase of low economic growth for the next 5-10 years.