INTERNATIONAL. Renowned investor, economist and author Peter Schiff, said not only there is no recovery but the fundamentals of the US economy have been worsening because of what the government has done to artificially stimulate it.

The trade off is that government policy has been able to get the stock market and asset prices to go up "because we are debasing our money," Schiff said.

In his weekly commentary posted Friday on the Euro Pacific Capital website, Schiff takes it upon himself to remind commentators that the 3.5% GDP growth figures announced this week does not mean "the fat lady finished her aria".

"By pushing up public and private debt, expanding government, deepening trade deficits, and pushing down savings rates, these interventions have succeeded only in putting our economy back on an unsustainable path of borrowing and spending. Accordingly, they have prevented the rebalancing necessary for long-term health," he writes.

"Could there be a simpler illustration of trading long-term pain for short-term gain" asks Schiff?

He reminds commentators that during the decade of the Great Depression in the 1930's, annual GNP expanded for six years and contracted in four.

The unpopular truth is that rather than curing the economy, government stimulus has made it sicker, he says.

Schiff notes that the GDP growth is largely driven by construction and consumer spending driven by government programs. He also says that these do nothing in adding to 'economic' value and have managed to reduce the savings rate.

"Third quarter 'growth' was largely driven by a 23% increase in residential construction (the largest quarterly increase since 1986) and a 3.1% increase in consumer spending, which included a 22% jump in durable goods purchases – mostly automobiles – and 2.3% gain in government spending. Since the increase in consumption outpaced the increase in production, the trade deficit expanded, reversing the positive trend for most of 2008 and 2009. Because the increase in spending outpaced the increase in incomes, the savings rate plunged from 4.9% in the prior quarter to 3.3%," writes Schiff.

The Bureau of Economic Analysis said the Cash-for-Clunker program added 1.66% to the US GDP growth and home buyer tax credit is estimated to have inflated  GDP by 0.25%. So, excluding direct stimulus packages, third quarter US economic growth would have been around 1.65%.

"An efficient allocation of resources – the only path to economic growth – is only possible when market forces, not Beltway bureaucrats, call the shots," said Schiff.

When the stimulus wears off, the resulting recession will be even bigger than the one that everyone assumes has just ended, said Schiff, concluding in a pessimistic note by saying that "until the impulse to fight recessions with government stimulus is quashed, genuine economic growth will never return. A string of ever-worsening recessions will eventually lead to what will be the next Great (Inflationary) Depression.

Schiff expects the Fed will soon have to take tough decisions of either having to supply the carry traders with an endless amount of cheap dollars or put a halt to the carry trade and aggressively raise interest rates that could “bring on a much more severe recession than anything we’ve experienced so far,” Shiff said in a recent CNBC interview.

Schiff believes we are still early in this bull market on gold.

In a recent web cast on Yahoo! Finance, he said he sees gold reaching US$5,000 an ounce.

Blaming the US government's poor monetary policy decisions, he sees the dollar falling to new lows versus commodities and other currencies.

Peter Schiff, 46, is an American economist, author, commentator and popular video blogger who regularly appears in the role of a bearish pundit on numerous financial news networks. Schiff, the author of 'Bull Moves in Bear Markets' is a licensed stock broker and the president of Euro Pacific Capital, a brokerage firm founded in 1980 and later reincorporated in 1996, now headquartered in Connecticut.

Last month, Schiff made official his long-expected US Senate bid for next year's elections.

He said in a statement: "I plan to bring my dedication and experience to the taxpayers of Connecticut. I may make mistakes in this campaign-but I will not make mistakes in representing you in the Senate. I look forward to an exciting race where I can share my vision with the people of Connecticut."

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