Government Stimulus is a Macrocosm of The Housing Bubble

There are now reports of inflation, and job losses.

Another report on Thursday showed a surprise jump in the number of Americans claiming unemployment benefits last week, which could cast a shadow on expectations for a significant pick-up in output in the second quarter.

Growth in gross domestic product slowed to a 1.8 percent annual rate after a 3.1 percent fourth-quarter pace, the Commerce Department said. Economists had expected a 2 percent pace.

The GDP report underscored the pain that strong food and gasoline prices are inflicting on households.

A inflation gauge contained in the report rose at a 3.8 percent rate -- the fastest pace since the third quarter of 2008 -- after increasing 1.7 percent in the fourth quarter.

A core price gauge, which excludes food and energy costs, accelerated to a 1.5 percent rate -- the fastest since the fourth quarter of 2009 -- from 0.4 percent in the fourth quarter. The core gauge is closely watched by Fed officials, who would like to see it closer to 2 percent.

Walmart has said that it has experienced its 7th quarter of losses.

Wal-Mart has struggled with seven straight quarters of sales declines in its stores.

Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.

Lately, they're "running out of money" at a faster clip, he said.

"Purchases are really dropping off by the end of the month even more than last year," Duke said. "This end-of-month [purchases] cycle is growing to be a concern.

What does all of this mean? It means two things. One the US economy is not getting better. Employment levels are not going up, the number of job losses might have decreased, but jobs are still being lost.

The reason, I believe, for all of this is the "Stimulus Packages".

Think about it for a minute. How did the housing bubble pop? It popped because the mortgages fell through, people couldn't afford their houses. Once prices reached a point that the average person could no longer afford them, people stopped buying causing home values to drop suddenly. It was a house-of-cards, the homes were never worth what they were selling for. Property is worthless if there is nobody to buy it. Remember Beanie Babies; how much can you sell them for now?

The government's answer, a Stimulus plan. The government borrows money and puts it into the economy. In the short term this might seem good, but in the long term it's unsustainable. The sheer act of borrowing against the future devalues the US Dollar now (it lowers our credit score). The more the US borrows the weaker the dollar becomes on the world market.

It's another bubble, another house-of-cards. The money pumped into the economy is no different than the housing bubble; IT'S FAKE. The money is not real, it's borrowed with interest upon repayment. These loans are based on future earnings. The problem is that the money the government is printing is not resulting in wealth creation. We are not creating future earnings, nor are there signs that there will be any future earnings anytime soon.

The fake money is only effective in the short term, before the value of the US dollar drops. Just like the housing bubble, it works until you reach the tipping point. For the housing market the prices reached their ceiling, housing prices were so inflated that people could no longer afford to buy. For the US there is a debt ceiling. Once we borrow up to that ceiling, or even close to it, we are on the very edge of having the value of the dollar collapse on the world market. Increasing the debt ceiling will only further devalue the dollar.

The government is going to raise the debt ceiling no-matter what they say now. Because they have to keep the "house-of-cards" (which is the US economy) up. The hope is that things will turn around and the economy will again start adding value to the dollar. The problem is that hope doesn't cut it in the real world. Foreign governments are quickly realizing that the dollar is about to become greatly devalued. Foreign investors are going to pull their money out.

I covered all of this before, but there weren't quite as many visible signs in the media then. Also the writing is on the wall and that's why foreign investment in the US is dropping.

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