The Lehman bankruptcy was a much more important event than 9/11. It marked the end of a 60-year credit expansion. Maybe it marked the high water mark for the US Empire, too. And the beginning of the end for the US dollar-based world monetary system.
But the occasion went by yesterday without much notice.
What’s most remarkable about this post-Lehman economy is that it is so un-remarkable.
What do we mean?
Well, yesterday we reported that consumers weren’t spending…and that prices weren’t rising. But that’s just what you’d expect for a Great Correction.
And here comes The Wall Street Journal with another non-shocker:
The income of the typical American family — long the envy of much of the world — has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.
The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.
The Census Bureau’s annual snapshot of living standards offered a new set of statistics to show how devastating the recession was and how disappointing the recovery has been. For a huge swath of American families, the gains of the boom of the 2000s have been wiped out.
Earnings of the typical man who works full-time year round fell, and are lower — adjusted for inflation — than in 1978. Earnings for women, meanwhile, are a relative bright spot: Median incomes have been rising in recent years and rose again last year, though women still make 77 cents for every dollar earned by comparably employed men.
The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993.
The WSJ goes on to provide more facts and figures. It scarcely needs to bother. We know what’s happening. The economy is contracting. And as it contracts, it squeezes jobs, incomes, spending and prices.
We saw a note in the press yesterday. It told us that even the wages of sin are falling. The union that represents waiters and cocktail servers at Atlantic City casinos says the hourly base has fallen from $8.74 to only $4.50. And tips are tumbling. Surveys of prostitutes show their earnings are a bit limp too.
And as people get squeezed by the financial correction…they gasp for breath. There are now 46.2 million people in America under the poverty line, according to The Los Angeles Times. That’s the most in 50 years.
But nothing extraordinary about that either. This is the biggest correction in half a century too. And you don’t have to look very far to find more confirmation.
That’s why the 10-year T-note yield has fallen to the lowest level since right after WWII.
And it’s why nearly half the people looking for a job have been looking for more than 6 months.
And it’s why a recent poll shows that 72% of Americans think the nation is going to hell.
Now, finally, almost everyone realizes that this is not a recession-recovery situation. Something else is going on. The Financial Times calls it a Great Recession. Richard Koo calls it a “Balance Sheet Recession.” And David Rosenberg says we should call it what it really is — a “modern depression.”
But we’ll stick with our Great Correction label. Because we think there is more going on here than even a ‘depression’ describes. (About which…more below…).
So far, practically everything that has happened is about what you’d expect — the predictable, ordinary consequences of a contraction. There is nothing remarkable about it.
But what’s this? The Dow rose 186 points yesterday. Stock market investors don’t seem to have gotten the message: this economy is in a contraction. They’re still pricing stocks as if they thought the underlying businesses would grow. But companies don’t add sales or profits in a contraction.
At least gold investors seem to have a better idea of what is going on. They sold the yellow metal yesterday. The price dropped $45.
And the bond market too has its feet on the ground. The yield on the 10-year note is only 2.08%. That is a level consistent with a Japanese-style slump…
No surprises here.
But what if there were more going on than a simple financial correction…even a correction of a 60-year credit expansion?
What if the Great Correction were greater than we thought? More ambitious…more aggressive…and more dangerous?
In the space of the last 500 years the human population grew approximately 1000%. If it were a financial chart, you’d look at it and think — ‘uh oh…it’s a bubble.’
What if we were approaching a correction?
Reuters reports that the population of Japan is falling like a stone. Some 20 million Japanese are expected to disappear in the next 30 years.
Declining, graying populations are not what you need for economic growth. Old people don’t spend much. Dead people spend even less.
As a result, the economy shrivels up like a 90-year-old. In Japan today about the only business still growing is the funeral business. People spend $157 to rent cold rooms, where they can store their loved ones while they await a spot at the crematorium. No kidding. Here’s Reuters:
The daily rate at Lastel, as it is known, is 12,000 yen ($157). For that fee, bereaved families can check in their dead while they wait their turn in the queue for one of the city’s overworked crematoriums.
Death is a rare booming market in stagnant Japan and Teramura’s new venture is just one example of how businessmen are trying to tap it.
In 2010, according to government records, 1.2 million people passed away, giving the country [an] annual death rate of 0.95 percent versus 0.84 percent in the United States, which is also the global average.
The rate of deaths is on the increase. Last year, there were an extra 55,000 dead and over the past decade, an average of 23,000 more people have died each year in Japan.
Annual deaths are expected to peak at 1.66 million in 2040 as the bulk of the nation’s baby boomer generation expires. By then, Japan’s population will have shrunk by around 20 million people, an unprecedented die off for a nation neither at war or blighted by famine.
In Yokohama, the average wait for an oven is more than four days, driving up demand for half-way morgues such as Lastel.
“Otherwise people have to keep the bodies at home where there isn’t much space,” says Teramura. It also provides a captive audience to which he can market his other funeral services and wares.
for The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.
Dead men don’t spend.
Neither do the Baby Boomers.
“Well, yesterday we reported that consumers weren’t spending…and that prices weren’t rising”
The Fed Gov BLS itself says
“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today ….
The energy index has risen 18.4 percent over the last year, while the food index has increased 4.6 percent”
Bill, much as I like your writing, you lose credibility when you ignore reality to support your argument.
So, when all things are considered: monetary problems, increases/decreases in the populations of various countries (DM/EM), any other macro fundamentals etc. what’s your outlook for gold in the coming years? You seem to be a bit ambivalent: you seem to say that it can go up, but likely it would go down (in the worst case to $1000), after which for some reason (why?) it will go much higher. Can you please elaborate this and how is that connected to the endgame of the debt super-cycle?
What’s the aggregate, Sands?
What’s the deal about those Shadowstats? Should we lend any credibility to them? Certainly, there are many ways to measure inflation – is theirs (Shadowstats) any better than the official one?
What’s the official aggregate indeed? I heard something like 2% (which certainly is not zero). Though I have no idea how much trust I can put in this number that is concocted by some economists.
1) I think Bill’s thesis is that gold will go down (along with everything else) due to the deflationary nature of the Great Correction, until the situation becomes so desperate that Bernanke and Co push just a little too hard and end up destroying the dollar-based monetary system in the process (with gold skyrocketing, of course.)
FWIW, I humbly disagree with this – I think that Bernanke’s deflation-fighting hubris and the degree to which official statistics are monkeyed with to suppress appearance of inflation are of such magnitude that we’re already on a one-way trip to hyperinflation.
2) Shadowstats uses (or claims to, at any rate) the methods for calculating inflation and unemployment that were in official use until the 1980s. So whether or not it is the best solution, it at least has a strong historical pedigree.
Why don’t they build more crematoriums? It looks like a business opportunity.
Look at the big picture. Greece is bust, and French banks own a lot of Greek paper. American banks own a lot of French paper. China owns America. It’s like that arcade game with the tipping pennies, except all the pennies are resting on each other. Just a few pennies more and the whole lot is going over. The dollar is doomed. Gold is the future. Gold miners are the best value.
Central banks go hand in hand rendering a generous helping hand to the bewildered Greece.
When the participating central banks are already troubled with their own untold national deficits for decades, where comes the resources to carry out the duty of “lender of last resort”. Flexing muscle despite ligament damaged may aggravate crippling process. Moreover the big gaping hole in Europe is widening, by no means it will be tinkered.
“In Yokohama, the average wait for an oven is more than four days”
maybe they could outsource this work to the germans ….
“… and that prices weren’t rising. But that’s just what you’d expect for a Great Correction.”
went to the grocery store yesterday, everything was up .1 to .3 over last week. all that money that has been printed these last few years is leaving what people do not have to buy and migrating to whatever people MUST buy. the banks and infestors will have their money.
“1) I think Bill’s thesis is that gold will go down (along with everything else) due to the deflationary nature of the Great Correction”
I propose an alternate view.
1) there is an ordinary correction ocurring
2) the debt dollar pyramid has reached it’s maximum base and like all pyramid schemes is beginning to implode
3) there is an ongoing outright decline led by demographic decline in all significant producing nations. japan is the furthest along in this, the united states and europe are right behind, and china’s will be the worst of all.
3 is exacerbating 2 and accelerating it. even if all debts were unwound today they would have to unwind further tomorrow adn the next day and the next. 2 and 3 are ripping the bottom out of 1. the bottom which this ordinary correction must reach gets lower every day.
as for inflation vs deflation it will be inflation. our currency is not linked to our economy but rather is controlled by people who want their share of the world’s wealth. as fewer goods and services exist to be had these people will print as necessary in order to get their hands on what little is left.
Who really needs a faster SUV and another tropical vacation anyway? I’m sick of all the consumer junk out there. A hike in the woods suits me a lot better than watching yet another cop show in hi-def.
Easily, printing press is directly linked to paper supply. Liberal printing press is another achievement, another milestone. Meanwhile, all traditional outdated tools will be brought out to contain inflationary spiral. Simultaneously, like it or not, printers need to accelerate to cater for the unsatiable demand. Printer has done no wrong, it merely fulfils the basic economic function of demand and supply. The ultimate outcome would be inflation has beaten deflation convincingly, not a match at all. The next phase would be the “golden age”, heralding gold and silver the undisputed global legal tender.
Nice one, gman!
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