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Captain Rick: The U.S. economy grew significantly slower in the second quarter than the sluggish pace reported in August. Q2 GDP was revised to 1.3%, down from 1.7% reported in August. This came as a surprise to most economists. It wasn’t surprising to me. What I found surprising is why last months Q2 GDP estimate was increased to 1.7% from the previous 1.5%. So, I am not surprised to see that it fell back to 1.5% and more. The surprised economists are already busy forecasting GDP will come in at 1.9% in the third quarter. Perhaps they will be equally surprised when it doesn’t. I should mention that 1.9% is still well under what is needed to break even. I believe economists need to retire their dart boards and start paying better attention to what is really transpiring around our world, as I have been doing for many years. It helps take the surprise out of things.

Gross domestic product (GDP) is the broadest measure of the nation’s economic health. 3% economic growth, represented by the red line in the chart above, is necessary to provide enough new jobs to keep pace with U.S. population growth. America has fallen short in all but two of the past three plus years. This means that the percentage of eligible workers who are working continues to drop almost every month. Real unemployment is continuing to increase, in spite of the bogus and meaningless unemployment percentages the U.S. government publishes each month. America’s unemployment rate is currently published to be 8.1%, but the real number is actually about twice that…and rising, not falling.

I am saddened to say that I do not see anything on the horizon that is going to raise America continuously up above that red line, where we need to be to enjoy a healthy and growing economy, for the next several years, perhaps 2017 or beyond. Even the Fed, the IMF and other global financial authorities predict similar sluggish growth through 2015.  Europe appears to in recession or close to it. U.S. growth of 1.3% is knocking on recessions door.  China’s economy is slowing quickly as a result of economic sluggishness in the West. This paints an anemic image of America’s economic health., with a global ripple effect.

I caution local and state governments to exercise fiscal restraint and filter out some of the local growth hype that is beginning to surface. Some of it is beginning to closely resemble fuel for another financial bubble…not real growth. It will be much smarter to put some funds in a ‘piggy bank’ for a ‘rainy day’ than to spend all of the receipts as fast as we can while the sun appears to be shining brightly.

I urge federal legislators to address the ‘Fiscal Cliff’ ASAP. This does not mean coming up with another political compromise to ‘kick the can down the road’ for another year. It means finding a real solution to reduce Americas debt NOW! Every time we postpone a proper ‘fix’, we bring our nation much closer to the real ‘Financial Cliff’…the one that will have the power and magnitude to reduce the United States of America to a third world country. How America handles this monumental problem will affect the entire world for decades to come.

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