Bill Bonner

The depression is alive and well, thank you.

The Dow rose 91 points yesterday. Gold fell $6.

Officially, the crisis is over. Everyone says so. Central bankers and Treasury officials have been congratulating themselves. It’s been a year now since the end of the world didn’t happen. These fellows take credit for it.

Bernanke said yesterday that he’ll keep the monetary spigots wide open for a while longer…but that’s just because the recovery is fragile. He also talks of an ‘exit’ from stimulus programs, now that the economy is getting back on its feet.

Claptrap! Balderdash! Flimflam!

The mainstream economics profession is guilty of dereliction of duty. They should be telling people that this ‘recovery’ is a scam. They should be warning investors that the markets could fall apart any day. They should be buying gold and selling US Treasuries…and explaining to the politicians that you can’t buy your way out of a depression with phony dollars squandered on wasteful projects!

Instead, the dopes are patting each other on the back…praising themselves for saving the planet from destruction.

But what really has gone on? And what’s going on now?

Glad you asked.

First, there is a real economic phenomenon going on – the depression. It’s alive and well…and doing just fine. Households are de-leveraging. Businesses are building up cash. People are losing their jobs. Savings rates are edging up.

Almost everything is happening as it should.

Depressions are times of falling prices. Markets are always discovering what things are worth. In a depression, they find that assets – stocks and real estate primarily – are not worth nearly as much as people thought.

That’s why we have our ‘crash alert’ flag still flying. Prices are vulnerable to sharp, unannounced drops until they finally get down to real depression levels. Since that hasn’t quite happened yet…we figure it’s still to come.

On the employment front, this depression has put more than 6 million people out of work. And every month, more people join the unemployment ranks. So far, so good. The US economy didn’t need so many marble countertop installers and so many mortgage refinancers. (If only something could be done to get rid of lobbyists!)

But the worst thing about a depression is that it holds jobless people prisoner for so long. Many of them will become lifers…they’ll never work again.

In that regard, this depression is similar to Japan’s 20-year depression, 1990-2010. After the bubble burst, the Japanese…who were aging faster than any race ever had…figured they needed to get serious about saving money. So, they cut back on spending…and saved. Domestic spending collapsed. Fortunately, the rest of the world – especially Americans – were still spending their fool heads off. And Japan is an export-led economy. Even so, with its own consumers dragging their feet, the Japanese economy didn’t go very far or very fast.

The Japanese put their vast savings, directly or indirectly, into Japanese government bonds…helping the government fund its massive stimulus programs. Of course, the stimulus programs were a waste of money. The economy never really recovered…and now the government is expected to have gross debt equal to 200% of GDP next year, according to the IMF.

For reference, the US is expected to reach 100% of GDP next year. Britain is hard on America’s heels with debt at 94% of GDP.

And now Americans are entering retirement savings mode too. The biggest age cohort – the boomers – need to do some fast saving in order to finance their retirements. They’re cutting back…not just temporarily…but permanently. They will never, ever again spend money like this did during the big bubble years 2003-2007. That’s what makes for a durable depression…

Another thing that makes for a depression is a lack of lending. Bank credit is still falling. Households cut back because they need to get out of debt…and save money for retirement. Businesses cut back too. New projects typically don’t do well in a depression. Small businesses struggle…and fail. Big businesses get bailouts and subsidies. Depressions are times to neither a borrower nor a lender be.

Debt is only increasing at the government level. But that’s another story for another day…


Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • Daniel Miller

    My big fat Greek crack up boom: 1/4 of Greek private money being offshored.

    My big fat Greek market disruption: Greek troubles weigh on markets.

    Greece’s effect on the market is like a fat kid jumping onto a pool cover.

    Some recovery, eh Harry? You Moron.

    BTW unemployment skyrocketed last month while home prices are crashing so hard, they may burn up from atmospheric friction.

    Are you dumb enough to defy it?

  • Doug

    I’ve been reading GNP is overstated by 20 % so we are already at 100 % debt to GNP.

  • CommonCents

    My grandfather immigrated to this country in the early 1900′s as a teen. He became a carpenter, finally being able to save and borrow enough to construct 6 homes to be rented and/or sold. The Great Depression hit him hard and he lost everything. With a great work ethic he was able to recover but he gave my father some advice.

    He told him to never borrow from a bank, because they own you. My father passed this on to me and I take heed. Being a builder myself I’ve never seen a downturn like this one. It must be a lot like the experience my grandfather suffered through. Luckily I have never forgotten his advice and I owe the banks nothing. And I too have my grandfather’s work ethic and will survive this.

    However, the government has through taxation, regulation, licenses, rules; laws, fees, tolls, etc. have made up for the banks. We are now all owned by the government. It’s a sad state of affairs that won’t change without a total collapse.

  • Phil Mahoney

    Come on Billy, you tell us the same damn thing every day, what’s happening with the family?

  • Skeptical

    When they say unemployment is a lagging indicator, how long does it lag? One year, five years, ten years?

  • JRod

    Bill- forget the family, what is going on in Argentina? Have you started the Casita? Are the cattle getting their fill of sand?


    Yeah it is fun to live life without the banks. Or a credit score. Didn’t need them 100 years ago and don’t need them today. I used to tell people how easy it was to avoid giving the banks any power over you, but then the feddle gummint started taking my tax money and giving it to Goldman Sachs by the ship load. Now what do I do?


  • Gene Scarborough

    I am a small businessman trying to run a tree surgery company in this bad economy in Eastern NC. My headquarters is in Rocky Mount, by I-95. It has been declared the “9th worst city economy” by Forbes about 3 months ago.

    For the last 3 years I have been making 30% of what I did previously. I have been hearing we are in recovery for 3 stupid years. Every small businessman in my area is hanging on by his fingernails and toenails which are now bleeding them to death. How much longer can we take it?

    I have written and talked with all my Federal Legislators about how FDR went to the family farmer (most prevelent small business in 1920′s) with their Soil Bank idea. It involved an immediate FED check for what the crop would bring at end of year–if the farmer would not plant another crop in over-production times.

    Within a month things were better by starting at the small business level. That same $1 paid to my grandfather went to pay his debts downtown / the business paid its debts and ordered more goods / the manufacturer called his workers back in to make that $1 producing more supplies for grandaddy and his kind.

    In this scenerio $1 = $4 as each level of business gets paid with that single dollar wisely invested by the Fed. Have we lost the history book on real solutions for a real Depression while we pretend this is only a Recession???

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