12/23/09 Paris, France – What’s happening in the world of money is that the depression continues… You wouldn’t know it from reading the headlines or talking to economists. According to the official line, the US economy expanded 2.2% last quarter.
How is that possible? Well, here at The Daily Reckoning, we’ve invented a new word to describe it – ledgerdemain. Go ahead. Look it up. You won’t find it. But the word perfectly describes the practice of making things look like what they are not by using accounting tricks. Unemployment is over 10%…and apparently still rising. House prices are punky…probably anticipating an avalanche of new houses for sale, from the ‘hidden inventory’ of places that people would like to get rid of…if there were any buyers. And the typical consumer household is rediscovering thrift.
It’s too soon to know exactly what is going on…but we have a suspicion. The “growth” now being registered is a product of ledgerdemain, not genuine economic expansion. It is growth a la Japan…
Very long time Daily Reckoning sufferers may remember. In the early ’00s we wrote so often about Japan that readers got sick of hearing about it. They threatened to cancel their subscriptions if we didn’t stop talking about it.
In our view, the US economy was following Japan into a long, slow slump…with on-again, off-again deflation…and on-again, off-again growth.
We were wrong. Under the influence of unprecedented stimulus from the feds, the US economy did not go into a Japan-like slump; it went into a bubble.
But now the bubble has popped…and it appears that the US is finally entering the Japanese trap. And there’s nothing much the feds can do about it. Government spending keeps the GDP from collapsing. But it is phony GDP…government giveaways, boondoggles and payoffs to the financial industry.
“It is a depression,” we told a small group of Dear Readers in Paris on Friday night. “It has nothing in common with the typical post-war recession. And it won’t end until it has done its work.”
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“And it won’t end until it has done its work.”
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And more than a full before done.
Two very funny points here:
-BB admits he was wrong on the US/Japan correlation.
-BB says “It’s a depression”
Well, BB was wrong, once again, yet somehow we’re supposed to believe this latest “prediction” will be right. I guess he doesn’t see how silly that seems.
If the Fed “gets the hang” of printing money and destroying the currency, the situation will look different. And how you invest will be different. To me, the real question is how long it will take for the Fed to transform this slow depression into an inflationary crisis. For now they are replacing collapsing M2 with M0, and at some point that number will hit bottom, and the inflation will start. They’ll never be able to sell the worthless real estate bonds to reduce the money supply, so the outcome after that is not in doubt. The timing is very much in doubt.
What happens when a China or Japan forecloses on the debt they have financed? Do you think they will stand idly by as we give them a devalued fiat currency as repayment? Do you think they will try to maximize the value of their holdings somehow? What will give them the most purchasing power for their savings? They are not going to continue to finance our government’s spending spree forever. Gold? Oil? Raw Materials? Food? Real Estate? All of the above? If you can figure out where all of this money is going to be put into play, you can anticipate where future values are headed. What do you think Bill?
I just read the funny parts about his kids.
I thought ledgerdemain was what happened when you mixed too many anti-depression drugs. Or was that ledgerdemise? Either way it fits the situation – there is no pill to cure this depression, although the Gov’t keeps writing prescriptions.
If anyone forecloses debt, business come to a standstill. Factories close, workers on eternal leave ….
Japanese Yen has been traded as high as 140 to a dollar. I presume Japanese and the 4 dragons have bought some treasury bond, somehow or rather at this rate. Almost 50% lost in transit. What sensible business brings you 50% in such a short span.
Use to it is OK. Close one eye and open another is the practice. Compromise is the keyword.
That’s brilliant Harry. But
1) everybody makes mistakes… they can be forgiven when dealing with something as capricious as the economy when at least your arguments make sense ; plus BB has proven quite right on the 2007 crash and later events
2) that kind of consideration doesn’t seem to bother you too much when it comes to CNBC / Ben Bernanke / Tim Geithner
I guess you don’t see how stupid that sounds.
“But it is phony GDP…government giveaways, boondoggles and payoffs to the financial industry” Reading all the comments I am amazed how many actually think that logic has something to do with it. Logic doesn’t have anything to do with it. Chaos rules and that is why it is somehow working. Go figure.
Sundance, no need to feed the trolls.
Merry Christmas to all!