02/04/10 Baltimore, Maryland – Dear, dear reader…we’re sorry to write so much. We would have written less…but we just didn’t have time.
As expected…the Bubble Era was followed by the Bust Era. We’re in it now.
And as expected…the feds swung into action, busily making things worse. The last budget from the Obama Administration beats even our cynical expectations. We anticipated something stupid. But this is suicidal. Scandalous…
And we expected that the crash on Wall Street would be followed by a bounce on Wall Street. We even guessed that it would recover about half of what had been lost – which it did. What surprises us is that it went on for so long. Even now, we’re still not sure it is over.
Yesterday, the Dow went down 26 points – after a couple of days of 100+ gains. Gold fell $6, which wasn’t bad considering how strong the dollar has been.
The dollar has gone up – but not exactly as expected. We thought it would go up as investors fled stocks and commodities. Instead, the dollar rose long before stocks and commodities began to fall.
Either the last phase of the bear market has begun. Or it won’t be long before it does. Stocks can go any which way they want in the short run – depending on investors’ delusions. But in the long run, reality catches up to them.
And the reality is: we’re in a depression. Stocks gotta get with the program.
But since the depression is invisible to most economists, the burden of proof is clearly on us:
“Retail sales continue to soften,” says one headline.
“Home ownership level falling to 67%,” say another.
“Personal bankruptcies up 15% from January ’09,” adds a third.
Bear in mind that a year and a half has gone by since the slump began. If this were a normal recession, we’d be recovering by now.
Instead, another report tells us that the unemployment rate has topped 15% in 19 different states. Now, that’s beginning to sound like a depression, isn’t it?
Another report tells us that now half the states are insolvent. Why? Tax revenues have collapsed, while the politicians failed to cut spending.
The latest GDP growth report came in at a surprisingly high reading over 5%. But take out the restocking of inventories…and the federal stimulus…and you have a negative number. Which means, the stimulus isn’t stimulating. It’s displacing. The private economy is giving way to the government economy. This week, for example, the federal payroll hit a new record – 2.15 million.
What do all those people do? More on that some other time…
Which brings us back to the federal budget deficit. At 11% of GDP, it’s matched only by the deficits of the war years – the War Between the States, WWI and WWII. Each time, lenders were willing to go along with such high deficits because the future of the country was at stake (or so they believed)…and because they were confident that the deficits would disappear after the killing stopped.
But this new deficit is a whole ’nuther animal. First, there is no real war going on. Second, there is no end to the deficits. The Obama administration itself candidly admits that the deficits stretch out as far as the eye can see.
Now, a question: since this is not like the deficits of the war years…why would lenders act as though they were? Why would they accept the same rates of return? The deficits are shocking enough in themselves. But while the quantity (in GDP terms) may be equivalent to those of the war years, the quality is totally different.
Which makes us think lenders are making a big mistake. They look at the deficits and say: ‘we had deficits that big before…we survived.’
But these deficits are different. They are serious deficits without a serious war… They just get bigger and bigger. And they don’t go away.
Investors are going to be sorry they bought US debt…
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 Reckoning. Dice 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.
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Too many parasites feeding off the host should be the title of your article re: the 2.15 million federal workers and others who bleeding the country. How long can the host survive? If only I had the answer.
Uhuh, the dow is back at 10000. Where’s Harry, I can tell he seems a little nervous by the unprecedented conceit of his tone. Rock solid recovery, wasn’t that supposed to be ? Time will undress idiots and make them appear naked in the end. We’ll just have to wait to settle who deserves this treatment.
HEY YOU STUPID DOOMERS – GET OUT OF YOUR BOMB SHELTERS – ITS A BUYING OPPORTUNITY, LOOK AT HOW AAPL IS CRUSHING… 1300 S&P PRETTY MUCH BAKED IN BY YEAR END…GEITHNER AND BERNANKE SHOULD SHARE NEXT YEAR’S PEACE PRIZE
Wait – I’m not-harry.
Harry’s wrapped in a blankie in his Mom’s trailer.
Got my computers running overtime buying up every bargain out there.
It’s like the BARGAIN BASEMENT.
Woo-hoo!!
“Which makes us think lenders are making a big mistake.”
I can explain that one; for once, I’m more cynical than Bill. We are now in some sort of statist/corporatist regime where the bankers don’t really control their own actions, they get told what to do behind closed doors. Witness BofA’s Merrill takeover, care of Treas. Sec. Paulson’s threats.
Bill asks; “Now, a question: since this is not like the deficits of the war years…why would lenders act as though they were? Why would they accept the same rates of return?”
And I answer; Because lenders know just as you and I that the very system itself is at risk of instant disintegration. So they cut Uncle Sam some some ( OK a Lot of ) slack.
hey bill do not forget that the government is not counting the GSE on their budget, that’s another 6.5 trillion
Given the huge, indeed mind-boggling amount of money the 2.15 million on the federal payroll are spending the headcount number is utterly small ^^.
Of course, it isn’t their money.