The Global Slowdown and Money Printing

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- The mainstream media are busy promulgating the idea that the Great Recession is a fast-fading memory and that it's now clear sailing for the global economy.

But the true numbers belie that notion.
Federal Reserve Chairman Ben Bernanke

One of the pieces of supposed good news being celebrated in the U.S. was an increase in the Institute for Supply Management's manufacturing index, which was announced this week. It rose to 53.4 in March from 52.4 in February.

But that somewhat better news came on the back of a U.S. consumer who has fully reverted to his borrowing and consuming ways.

Spending jumped by 0.8% in February, the biggest increase in seven months, but incomes increased by only 0.2%.

More importantly, real disposable income declined by 0.1%, which was the third such decrease in the last four months. As a consequence, the savings rate fell out of bed, to 3.7% from 4.3%. The latest rate was the lowest since August 2009.

Therefore, the small rebound in manufacturing and the huge increase in spending by the consumer is ersatz and unsustainable in nature. The problem is that consumer debt has now started to increase once again at a time when it desperately needs to contract.

The Europeans have taken a small step toward addressing their problems. They are trying desperately to embrace fiscal austerity, but in the meantime they have also been dealt a huge dose of monetary madness from the European Central Bank.

Thus, Europe is taking only a half-hearted dose of the appropriate medicine for its economic ills, and this won't heal the patient.

Evidence can be found in the eurozone manufacturing PMI released this week. It fell to 47.7 in March, declining in Spain, France and even Germany. But perhaps most troubling was that the unemployment rate in the eurozone rose in February to 10.8%, its highest level in nearly 15 years.

However, household inflation in the eurozone was 2.6% in March, which is well above the ECB's 2% target rate. By addressing only fiscal imbalances, Europeans will have to battle a recession that is accompanied by inflation instead of having the amelioration provided from falling prices.

In contrast to Europe, the U.S. hasn't gone one inch towards fixing the crumbling foundation of our fiscal imbalances.

And both the Federal Reserve and the ECB cling to the belief that borrowing and printing money is the best path to prosperity. What Ben Bernanke and Mario Draghi either don't know or refuse to acknowledge is that this is a balance sheet recession in America and Europe.

Therefore, creating copious amounts of new money will not increase productivity or grow the labor force. It will, however, continue to provide a tremendous headwind to the economy in the form of rising inflation.

Interest rates have been at rock bottom for the last three years. They were taken to zero by printing money (inflation) and not by a superfluous amount of savings evident in the economy.

Therefore, these low rates have both a moderately positive and extremely negative effect for GDP. Low interest rates do provide some temporary relief on debt service payments. That's great for the heavily debt-laden consumer and government -- while these low rates last.

But those same artificial low rates punish savers while destroying the purchasing power of the dollar. Since interest rates are already at near zero, there will not be any further relief on debt service from continuing to print money. There will instead be a pernicious increase in the level of inflation and rate of currency destruction.

The Fed's next meeting will be at the end of April, and the following meeting won't be until June. Traders are anxiously waiting for more quantitative easing, while the economy is bracing for yet more stagflation.

If Mr. Bernanke takes a pass this month on further QE, commodity prices and the stock market will -- it is hoped -- undergo a healthy pullback.

However, if the Fed prepares to launch another round of quantitative counterfeiting, the gold market will take off like a rocket while the economy will sink further into the stagflation abyss.

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