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Jim Worth Headshot

Hiding America's Real Economy

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America's economy seems to be recovering, but is that the 'real' story?

Some fourth quarter economic indicators -- retail sales, manufacturing, stock market, corporate profits -- portend a rising economy significant enough to avoid another slide to the bottom.

The optimism on Wall Street is palpable as the stock market continues to rise, or melt up as they now say, a result of the positive indicators over recent months. And the heightened exuberance the consumers showed this holiday season was also a positive sign. Manufacturing has been rising for the last several months, which is seen as paramount to an improving economy.

The stock market is on its way back to its peak, due, in part, to record corporate profits.

The market is considered a forward looking indicator, and the private sector seems poised to stand on its own and no longer require the extreme measures it needed from the federal government.

So what could possibly go wrong and who would even whisper that things weren't getting better?

Though the number of people questioning the recovery is declinin,g there are still some that do not accept the premise that all of America's economic problems are behind us and the recovery is completely sustainable.

Realists, unlike the over-optimistic beneficiaries of a rising market, look at all aspects of the economy and not just the positive headlines. Despite the promising numbers coming out of the government and corporations, repeated by CNBC and numerous analysts, there are negatives that could have a significant impact on the economy. And a few of them are large enough to warrant examination.

A realistic view of the economy would include the problems in the housing market and high unemployment, either of which could derail the recovering economy. It would also include the increasing deficit and the recent extension of the tax cuts and the unrealistic change in the estate tax -- all negatively impacting a healthy recovery.

Another undiscussed element is government stimulus -- in many forms. The government is still the biggest contributor to the recovery through a multitude of stimulative and protective programs, some that are conveniently hidden from public scrutiny.

Aside from the stimulus package of nearly $900 billion, the Federal Reserve has shored up the economy with possibly $3 trillion or more -- stimulation and rescue of the financial institutions and corporations -- assistance unavailable to the general public and masking the extreme risks in the economy.

These veiled economic programs will have a negative affect on the economy if they fail. The failure of any one of them could not only stall, but reverse the recovery.

The Fed is holding over $1.3 trillion in toxic assets of the big banks; assets that were supposed to be rescued with TARP. The Toxic Asset Relief Program was used for another purpose -- bailing out the banks -- so The Fed covertly bought the assets, most likely above their market value. They also loan to banks at zero percent and the banks buy U.S. debt with a two or three percent return; debt that they had a part in creating.

Banks are hiding potential losses on foreclosed homes by not having to mark them to market. Robo-signing repercussions could be incredibly high. The housing market had over a million foreclosures in 2010, and 2011 could be even worse.

Corporations are holding toxic assets off-balance-sheet, listed as footnotes in reports. States and municipalities are under fiscal stress and threat of default. The FDIC is a partner in hundreds-of-billions in loss-share agreements for seized banks and their tenuous assets.

Treasury has guarantees in place with banks and corporations which may exceed a trillion dollars. They also own billions of dollars in stock in banks, corporations and financial entities. The Fed balance sheet could be a more serious problem than is being discussed, and the lack of transparency is problematic.

These hidden programs have benefitted corporations and Wall Street, but, only marginally helped Main Street which continues to struggle, bouncing along the bottom destined to remain there until the next crisis; a crisis that will surely wipe Main Street out.

At some point the shadowy structures of The Fed and Treasury may be forced into the light and it could be ugly.

As long as secrecy exists throughout the financial world the U.S. and global economies are at extreme risk. This risk is bad for markets.

The world, on such dubious ground, cannot afford the huge loss the markets' will sustain. Transparency is a must--the world deserves the truth.

But, maybe, the world can't handle the truth.