Bill Bonner

“Call it a nightmare,” says Dave Rosenberg.

Markets all over the world went down again yesterday. The Dow dropped below 10,000 in the morning trading…then came back to give up a modest 22 points by the closing bell.

The Wall Street Journal says it’s time to start worrying about a “double dip recession.”

We suspect that output will dip below zero again – giving us, technically, a ‘double dip’ recession. But calling it a recession misses the point. It’s not just a pause. It’s a change…a Great Correction.

There’s something else going on…something much more important and much harder to deal with than an ordinary recession. The feds have thrown everything into the battle to stop this downturn. No matter how you look at it, the ammunition spent in this fight has been spectacular.

And it hasn’t worked. Unemployment has actually gotten worse. Private sector credit has declined. And what’s this? “Falling home prices raise fears of new bottom,” says a headline.

People talk of ‘recovery,’ but it’s now three years after the crisis began and there is no recovery. Instead, there’s another crisis on the horizon.

And now the trouble is, the feds don’t have much ammunition left to fight this US debt crisis. Interest rates are already at zero; they can’t go lower. And the federal deficit is already as much as 10% of GDP.

Besides, it’s becoming clear that all that ammunition fired off so far was wasted! It got us nothing but more debt.

The problem was never a recession. It was too much debt in the private sector. But the feds misunderstood it. They thought it was a regular recession that they could ‘cure’ with more credit and more spending. So, they added trillions of new debt in the public sector!

They claimed to have spared the world economy a worse disaster. But now that worst disaster is happening anyway. The bad dream has turned into a nightmare. Because it’s not just the private sector going broke; governments are going broke too.

Not that we have any new information on the subject. And we wait to be proven wrong. But we can add and subtract. And when we add up the debt totals in the developed world – the US, Europe, and Japan – what we get are some pretty big numbers. Government debt alone is $32 trillion. That’s for a combined economy of about $34 trillion.

Right now, with the lowest interest rates in 30 years, it’s still possible for most ‘western’ governments to pay the interest and finance their deficits. But Europe has already run into trouble. Every government in Europe is scrambling to come up with a credible plan for budget cuts. David Cameron announced his plan just yesterday.

“Austerity plans multiply in Europe,” says the headline in yesterday’s Figaro. And those poor French bureaucrats! They’re supposed to cut expenses by 10% next year.

In Japan and America, on the other hand, deficit spending still looks easy. Aside from a few cranks, clairvoyants and Daily Reckoning readers, everyone seems to think things will be all right forever. There is no serious pressure to cut budgets – except at the state level. The Pentagon still has a blank check – it just fills in the amount each year. Health care expenses still grow like weeds without winter.

Few people realize that America’s finances are already no better than those of Greece. Fewer still care.

But heck, we’re not going to go around with a long face about it. Nope. So what if the stock market begins the terminal phase of its long bear market – the one that began ten years ago? So what if the real estate market takes the next stairway down towards more foreclosures and lower prices? So what if the feds go broke?

We’re not going to sweat it. Instead, we’re going to enjoy it.

But how? Ah… Well, first, we’re going to stay out of US stocks in the short run. Then, we’re going to get out of US bonds and the US dollar…too. We’re going to stay in cash and gold…

And maybe we’ll learn to speak Chinese…

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. 

  • Alexander

    well, being out of stock and bonds is ok, but dollar seem to be in the long term bull market. At the end of the day, US still has tremendous military potential, and dollar cash will be most desirable thing in our overindebted world for years to come. Deflationary depression = cash is king. USD and JPY cash especially.

  • jason

    The shares closed below 10K today for the first time in several months–over the beginning of this year and into the spring they went up and up but appear to have reached their upper limit last month. And finally maybe people will start to see that the ‘recovery’ never really was.

  • 99 cent Nation

    Its really great living in a country that you can not trust the government to keep the currency at a even and stable level wither it is backed by any thing or not, and have to try and out smart the fed in ways that at least your purchasing power will remain somewhat stable if indeed there will be anything to purchase. You have to purchase products such as gold which is totally manipulated by the producers and pr firms or oil which is manipulated by the producers and pr firms. What a great country this has become. No one has a clue what the next bubble or price for commodities or anything else will be. And yet they pretend to know something which of course every body else knows they don’t. That seems to by why so many are leaving this country. What a really pathetic game we play.

  • bozo

    Warren Buffett put it well. “Gold gets dug out of the ground in Africa, or someplace,” he said. “Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

    At some levels, gold, as an investment, is absolutely ridiculous.

    And that’s not the half of it.

    Gold is volatile. It’s hard to value. It generates no income.

    Yes, it’s a “hard asset,” but so are lots of other things—like land, bags of rice, even bottled water.

    It’s a currency “substitute,” but it’s useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking “facility” still trying to settle their debts with cigarettes. That’s gold. It doesn’t make sense.

    As for being a “store of value,” anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.

  • bozo

    At some levels, gold, as an investment, is absolutely ridiculous.

    Warren Buffett put it well. “Gold gets dug out of the ground in Africa, or someplace,” he said. “Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

    And that’s not the half of it.

    Gold is volatile. It’s hard to value. It generates no income.

    Yes, it’s a “hard asset,” but so are lots of other things—like land, bags of rice, even bottled water.

    It’s a currency “substitute,” but it’s useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking “facility” still trying to settle their debts with cigarettes. That’s gold. It doesn’t make sense.

    As for being a “store of value,” anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.

  • JRod

    Copy that $.99.

    I have recently been scheming with my retired mother on what to do with her life savings to try and perserve purchasing power.

    It must have been nice back in the 1800s when you didn’t have to do anything, but sit on the bills.

    Tough for the man to steal your wealth that way though.

    You could buy gold, but if it does go up you get to pay a nice tax on the “gains” even though the “gains” were from inflation. And I am waiting for them to institute a sales tax on gold to try to kill it.

    I am starting to think that 99 cents is a hell of a lot less than a dollar.

    Cheers.

  • Max Power

    how much money did you make today harry??

  • http://www.deficitaid.com deficitaid

    Articles like this just make me scratch my head and wonder why isn’t the debt problem in America the number one issue. Why don’t people care? The media is just a mirror of what the population is interested in hearing for the most part. They need to make money, thus focus on buzz issues. Occasionally the press goes after issues to create a buzz. This issues would require reducing entitlements and increasing taxes to solve the looming crisis. Who wants to wave that flag?

    Educating America on government spending issues is the first sparking the buzz and putting this issues on the tips of everyones tongues.

    DeficitAid.com

    thanks

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