In his weekly update, Michael Pento analyzed some important macro economic data globally. He came to the well known conclusion that economic conditions worldwide are deteriorating. The primary driver is the debt crisis. Listen to his podcast (mp3).
Governments in the Western economies hold to their conviction that they are able to create demand in an artificial way, by continuing monetary stimulus and financial repression. They simply borrow money that is printed. They can levitate the economy for a very short period of time, but the longer term effects are clear: currencies are crumbling currency and the amounts of debts keep on growing. Michael Pento is convinced that these destructive effects will overwhelm the intended effect.
Michael Pento mentioned the following data in his update:
- The most recent unemployment statistics in Europe reached an all time high of 11.8%. Youth unemployment in Spain stands now at 56.5%.
- Japan’s manufacturing figures and currency keep on going down. The debt to GDP goes up and stands currently at an incredible 237%. That means that a staggering 237 Yen is needed in order to create 100 Yen of economic value. The trend of the debt to GDP ratio remains up, unfortunately.
- The US Fed started on January 1st the QE4 program in which a monthly $45 billion of bond buying are put to work, in addition to the ongoing monthly $40 billion, until the unemployment falls below 6.5%. Here is the math: IF the current 150.000 monthly new jobs are sustained, than it will take 6 years to reach the intended target.
- The US debt ceiling will be reached on February 15th. The spending cuts of $1.2 trillion that were announced in the summer of 2011 are already invalidated, as the Obame administration seems to be committed to raising the debt ceiling again and don’t implement spending cuts.
These recent statistics all confirm that the real effects of easing monetary policies are destructive.
Going forward, the expectations of Pento Portfolio Strategies are to see a relief rally in March (after the debt ceiling issue will be “solved”). Three important factors are expected to influence the period after:
- The end of hurricane Sandy’s spending (government stimulus).
- Higher tax burden will come into effect.
- The effect of tensions in Iran on oil prices and the world economy.
More about Michael Pento’s company Pento Portfolio Strategies.