Bill Bonner

Want to know what is really going on?

Investors are waking up. They are wiping the sleep from their eyes. Behold! No recovery.

Analysts and the commentariat are struggling to make sense of it. With record low mortgage rates, and after eight programs designed to boost up housing, for example, sales are still plummeting. July saw the biggest monthly drop in existing house sales since the Johnson Administration.

The supply of houses for sales is growing – thanks to record foreclosures. The demand is falling. Prices will come down too.

It’s a Great Recession, say some.

It’s not a recession, it’s a depression, says David Rosenberg.

It’s a “Contained Depression,” says one headline at Seeking Alpha.

The recession never ended, says another headline.

Stocks will sink to 5,000, says a headline at CNBC.

Bloomberg takes a more moderate tone:

“Durables, Housing Signal Recession Risk.”

But you, dear reader, you want to know what is really going on. So we will tell you.

We begin with a detail from yesterday’s news: credit card debt has dropped to its lowest level in eight years. This tells us that the de-leveraging of the private sector is real…and on-going. And as long as it lasts, you can forget about a “recovery.”

Instead, you should expect more on-again, off-again recession…with high unemployment, falling asset prices (stocks and real estate), weak sales and declining incomes.

This correction is a good thing. Consumers have too much debt. They’ll be better off when they get rid of half of it. But the feds want to fight this correction in the worst possible way. What’s the worst possible way? Adding more debt!

While the private sector de-leverages, the public sector leverages up. Eventually, this will have the result that everyone expects…bonds will crash, and the dollar will collapse…BUT PROBABLY ONLY AFTER PEOPLE STOP EXPECTING IT.

In the near term, the stock market is probably going down…it seems to be rolling over now. Yesterday, the Dow rose 19 points – a very weak bounce after so many down days.

When stocks go down, they will drag inflationary expectations. It will probably bring down stock markets in the emerging economies…possibly causing the Chinese economy to blow up…and bring falling commodities prices and deflation too. The idea of a “bond bubble” will disappear. People will see the “depression/Great Recession” as real…and permanent. They will try to protect themselves by buying US Treasury bonds. This will permit the feds to go further and further into debt.

Thus begins the world’s long day’s journey into night.

The US economy will become a Zombie Economy, with more and more activity dependent on government spending and government support. Banks are already Zombie Investors. Rather than lend to viable businesses that expand the world’s wealth, they borrow from the feds and lend the money back to them. We’ll see private investors become Zombie Investors too – putting nearly all their savings into US Treasury paper, just as the Japanese did.

The Dow will sink down towards 5,000. The feds will announce program after program to boost up the economy. Household savings rates will head to 10%. Unemployment will go to 12%…maybe 15%. Bond yields will collapse to new record lows. Ben Bernanke will threaten to drop money from helicopters…but as long as the US remains in an orderly decline, he will not dare to do it.

Eventually, the whole system will blow up in a spectacular fireball. But not until America’s investors are fully committed to US paper. Then, after having suffered huge losses in stocks and real estate, they can be finally ruined in what they thought were the safest investments in the world – dollar-based US Treasury bonds.

Bill Bonner
for The Daily Reckoning

Bill Bonner

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.

Recent Articles

Can Money Printing Cause Deflation?

Marc Faber

"There has been an issue that has preoccupied my mind for a long time," writes Dr. Marc Faber. "In economics, it is generally accepted that if the quantity of money and credit is increased, prices will rise… However, since economics is so complex… I question whether the expansion of central banks' balance sheets and policies of zero interest rates could have a deflationary impact…" The good doctor wrestles with the question, in today's essay...


Forget the Oil Crash – Crush the Market With Biotech Stocks

Greg Guenthner

The Biotech iShares ETF is up 23% since the Oct. 15th bottom. No, that is not a typo. Biotechs have torched the S&P over the past two months--more than doubling the returns of the big index. And biotechs as a group are up more than 38% year-to-date. In fact, since we first highlighted the June comeback, the Biotech iShares have gone nowhere but up.


How Low Will Oil Go – And What Can You Do?

Matt Insley

The oil market has been under siege for six months. From service providers to producers this downturn has been painful. Of course, we’ve known all along that oil prices were a little toppy over the summer. In fact, when asked just how low oil prices could go I usually answered with a simple “lower than you’d expect…”


Cuba’s Berlin Wall Moment

Peter Coyne

Our forecast that Cuba would be open and integrated within 5-10 years is on track after yesterday's big announcement. Ahead of schedule, even. Click here to see how some investors have profited and what the island's likely future is...


The $4 LED Trend You Don’t Want to Miss

Chris Mayer

The opportunity to sell and install LEDs is enormous. We’re talking about over a billion lighting fixtures. And the areas with the largest potential -- like parking lots -- have barely begun to change. Banker to the presidents Chris Mayer says you could triple your money in this new tech trend. Here's what you need to know.


How to Make the Casinos Pay You for a Change

Greg Guenthner

It's a theme we've shared with you since April. And it's only gotten worse. The gaming industry has come under all sorts of pressure--a situation I first noticed in the charts. The powerful, multi-year uptrends started showing cracks. And it wasn't long before those cracks turned into gaping holes you could drive a friggin' truck through. That's where things stand today.