Let me give you an example. If I could go out overnight and magically double the bank accounts of every single American, would we all be twice as wealthy?
No, because there would be twice as many dollars now chasing the same amount of goods and services. The price of those goods and services would soon rise dramatically to reflect this new reality.
With all of those new dollars spinning around in the economy it would look like "economic growth" was going through the roof, but in reality the amount of real economic activity would be about the same.
So whenever we talk about GDP, we need to properly adjust it for inflation. That means using accurate inflation figures and not the highly manipulated inflation figures that the U.S. government is putting out these days.
And as I noted the other day, after properly adjusting for inflation the U.S. economy has been continually experiencing negative economic growth since about 2005.
So let's not deceive ourselves. The U.S. economy has been declining for a long time.
But soon even the GDP number that the government gives us will turn negative. We will probably see a slightly positive number for the second quarter, and the number will likely go negative either in the third quarter or the fourth quarter.
Economists will debate when this new recession officially "began" just like they do with every recession, but it doesn't take a genius to figure out what is happening to our economy right now.
The following are 17 reasons why those hoping for a recession in 2012 just got their wish....
1. U.S. retail sales have declined for three months in a row. This is the first time this has happened since 2008. Every other time this has happened in U.S. history (except for once) this has signaled that the U.S. economy was either already in a recession or was about to enter one.
2. The Philadelphia Fed index of manufacturing activity contracted for the third month in a row during July. According to the Financial Post, this is a very bad sign....
Seven out of eight times when the average reading has been that low (-11.8) for that long the U.S. economy has tipped into recession.3. Manufacturing activity in the mid-Atlantic region has also declined for three months in a row. In fact, the only time in the past decade when manufacturing activity in the mid-Atlantic has fallen more dramatically was during the last recession.
4. A factory index calculated by the Institute for Supply Management has fallen to its lowest level since June 2009.
5. The Conference Board index of leading economic indicators has fallen for two of the past three months.
6. According to a recent survey conducted by the Conference Board, only 17 percent of CEOs had a positive view of the economy during the second quarter of 2012. During the first quarter of 2012, 67 percent did.
7. Gallup's U.S. Economic Confidence Index is now the lowest that it has been since January.
8. Optimism among small business owners has declined in three of the last four months and is now at its lowest level since last October.
9. Believe it or not, the amount of waste being carted around on trains in the United States has an 82 percent correlation with U.S. economic growth. Unfortunately, right now the number of garbage carloads on trains is falling dramatically.
10. Sales of previously occupied homes dropped by 5.4 percent during June.
11. Sales of new homes declined by 8.4 percent during June. At this point new home sales are less than a third of what they were during the boom years.
12. An increasing number of Americans are relying on high interest "payday loans" to pay the rent and put food on the table.
13. Far more companies are defaulting on their debts this year than last year.
14. According to the U.S. Labor Department, the unemployment rate fell in 11 states and Washington, D.C. last month, but it rose in 27 states.
15. The unemployment rate in New York City is now back up to 10 percent. That equals the peak unemployment rate in New York City during the last recession.
16. The teen unemployment rate in Washington D.C. right now is 51.7 percent.
17. A recent survey conducted by the National Association for Business Economics found that only 23 percent of all U.S. companies plan to hire more workers over the next 6 months. When the same question was asked a few months ago that number was at 39 percent.
All of those are very powerful pieces of evidence that a new recession has started.
But do you want to know one of my favorite indicators that the U.S. economy is sliding into recession?
In a previous article, I noted that Federal Reserve Chairman Ben Bernanke made the following statement to Congress recently: "At this point we don't see a double dip recession. We see continued moderate growth."
As I mentioned the other day, Bernanke has a track record of failure that is absolutely embarrassing. Back on January 10, 2008 Bernanke made the following statement....
"The Federal Reserve is not currently forecasting a recession."That turned out to be a great call, didn't it?
On June 10, 2008 he doubled down on his call that the U.S. economy was going to avoid a recession....
"The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."Just before Fannie Mae and Freddie Mac collapsed Bernanke made this statement....
"The GSEs are adequately capitalized. They are in no danger of failing."And there are dozens of other examples just like these.
This is the guy running our economic system.
I am very critical of the Federal Reserve, but there are very good reasons for this.
The Federal Reserve is running our economy into the ground, and we need to pound this into the heads of the American people so that they will wake up and demand change.
Perhaps this next recession will be painful enough to wake people up.
The Wall Street Journal is already even using the "D word" to describe what we are experiencing. Just today, the Wall Street Journal ran an article that asked this question: "Do Two Recessions Equal One Depression?"
Sadly, this is just the leading edge of what is coming. By the time 2014 or 2015 rolls around, we are going to look back and long for the "good old days" of 2011 and 2012.
Over the next few years, the unemployment rate is going to skyrocket and poverty in the United States is going to get a whole lot worse.
Now is not the time to goof off. Now is the time to work really hard to get yourself and your family into the best position that you can for the storm that is coming.
Nothing is going to stop the terrible economic crisis that is coming, but at least we can get prepared for it.
There is hope in being prepared.
Sadly, most people will never even see the next crisis coming until they get blindsided by it.