Despite massive Government spending on the stimulus and rescue program, the economy seems in no mood to rise even an inch above the level of collapse. The Federal Government expected to change the scenario of the financial industry by passing its $787 billion stimulus package. The size of the plan conveniently blinded the observers that the damage to the economy has already been done.



The latest spending signed by President Obama included $300 billion committed to Citigroup, $700 billion for TARP 1, $300 billion for the FHA, $200 billion for TAF and around $300 billion for Fannie and Freddy. The Government spending has reached a whopping $5 trillion to save the financial industry from collapsing. But prior to this spending, the Federal Government had committed $4 trillion to keep the banks from failing and help them in restructuring. That is 9 trillion dollars!!!

With an additional $787 billion into the rescue and stimulus spending package, there still is no guarantee confidence can be restored or certainty of economic growth. This can be said given the worst recession that has hit the world economy in a century. If the rescue package is unable to save the banking system in this deepening deflation, then who can guarantee that the Government will be enabled to reduce inflation when it starts to hit.

Senator McCain has highly criticized the splurging in Obama's Government and unprecedented spending towards the rescue package. He describes the scheme as “generational theft”. He feels that if this spending on financial restructuring does not yield the desired results then it is going to encumber many future generations with this gigantic debt which is further going to halt restructuring and unveil the suppressed hyperinflation to the surface.

Rational investors have also condemned the act of rescue and stimulus spending, by stating that the government is only throwing money at the problem. It's all the more threatening when the government has no idea on how to proceed in the given financial situation and is over zealous spending like throwing fuel on fire.

Looking at this unsure and intangible move of the Government, practical investors have decided to store wealth for the future downfall in the economy. They are doing this by stock piling gold coins, bars and stocks. This has obviously resulted in high demand of gold which has shot up the gold prices to an all time high.

Congress is failing to understand the implications of further debts, especially in this intensified recession scenario. The notion of funding the financial industry to help in their restructuring is doing nothing but adding to the already overwhelming debt. They are forgetting the most important point here that with the current inflation rate, banks will not be able to recover from their debtors which is only going to threaten the credit industry.

Even the most optimistic observers have serious doubts in the Federal government strategy after the release of the latest minutes of spending an extra $787 billion on banking systems. The American economy had declined by 3.8% in the last quarter of 2008. And with this massive spending of the government, it is forecasted to dip even further to around 5.5% in the first quarter of this year.

Despite the substantial spending on the rescue and stimulus bill, the average American consumer is threatened by inflation and is nervous about the further downfall in the economy. With this being said, the credit market is definitely going to show minimal signs of recovery.

As if this is not bad enough, investors are taking huge hits given the further worsening markets. The Dow Jones Average is stumbling to new lows and the commodities market seems to be at the dead end. In such situations, people would expect the prices of gold to fall along with the prices of other assets and commodities. But surprisingly, it has been the complete opposite of the expectations.

Gold prices have peaked in the last couple of moths. The price-depressant activities like the official gold-sales by the IMF and official approval for the massive naked short positions to be operated by the new bullion banks have not influenced in anyway to control the rise in the price of gold.

Gold spot prices have reached new heights and the price of physical gold is around $40-$50 high per ounce than the spot price. This has caused panic amongst investors they are insisting on taking physical delivery.

It does not seem like the economy is going to improve in the near future. This is obviously going to adversely affect the recovery. Government is trying to replace the spending normally done by the consumers which make up 70% of the economy, but at this rate, the dollar's influence will continue to diminish as countries look toward other currencies to store their wealth. Gold is expected to reach minimum $2500.00 which factored for inflation is where it reached in the early 80's ($850.00). We have a long way to go! Buy Gold!