Bill Bonner

Have yourself a merry little depression.

Dow up 45 points. Gold down $9.

We’re still waiting for a major correction in the gold market. Each time one begins, it seems to run out of steam before doing any real damage. At yesterday’s closing price, $1,577, gold is still solidly ahead for the year.

So, where’s the soft spot? Where’s the test? Where will it come from? When?

Don’t worry, dear reader, Mr. Market will test us. He’ll throw his curve ball. We have to be ready.

What if…

…instead of testing us on the downside, he tests us on the upside? This is not a prediction. Just a thought. What if gold suddenly shot up…and looked like it was going to the moon. What would we do?

Citigroup’s metals expert puts a $3,400 price on gold “in the next year or two.”

Jim Rogers makes a similar forecast.

What if they’re right? We only mention it because The Trickster has more than one trick up his sleeve. And he’s perfectly capable of running the price up to $3,500 BEFORE testing us.

We could get giddy, watching the price of gold hit record after record. And then, just when we think it is ready to scale its final peak, gold could turn tail and run for the valley. We wouldn’t believe it. We would hold on. We would wait for it to go back up.

And then…wouldn’t we feel stupid, if we’d taken that ride all the way to over $3,000…and then rode it all the way back to today’s level? Wouldn’t we be put out with ourselves, if we sold out then…thinking gold had put in its final top and we missed it?

According to the 50% principle…it could hit $3,000…collapse to barely $1,500…and then soar again…possibly going to $5,000…or even $10,000. That’s what we’ll get in the final ‘crack up’ boom that is coming.

Who knows?

But what we see is more upside than downside for gold. Because the motor pulling gold up still has a lot of gas in the tank.

In the US the feds spend $1.60 for every dollar they raise in taxes. In Europe, the euro-feds prepare to bail out their banks and sovereign debtors.

And guess how much the feds have already spent? They were so desperate to avoid a debt crisis…or a depression…that they threw the throttle wide open on the biggest rescue effort the world has ever seen. Bloomberg calculated that $7.7 trillion were put to work. Our estimate was higher — about $10 trillion, we guessed.

Well…we were both way off. Here’s the news report:

As part of the Ford Foundation project “A Research and Policy Dialogue Project on Improving Governance of the Government Safety Net in Financial Crisis,” Nicola Matthews and James Felkerson have undertaken an examination of the data on the Fed’s bailout of the financial system — the most comprehensive investigation of the raw data to date.

The extraordinary scope and magnitude of the recent financial crisis of 2007-09 required an extraordinary response by the Fed in the fulfillment of its lender-of-last-resort function.

The bottom line: a Federal Reserve bailout commitment in excess of $29 trillion.

Whoa! The feds put at risk an amount equal to 200% of US GDP. And for what? So that a depression wouldn’t knock 5% off GDP? Even the Great Depression of the ’30s only set the US back by 30% of GDP. A similar setback today would cost the economy less than $5 trillion.

Do you see what we see? Even if it worked — which it didn’t — the feds’ efforts would have been a disaster. Who would spend $29 trillion to save $5 trillion?

But wait. There’s more. This assumes that a depression is unnecessary…or that it doesn’t do any good. We know that’s not true. A depression does a lot of good. It wipes out bad investments and eliminates bad speculators. It forces capital into more productive, more profitable uses. It kills off zombie industries. It retires worn-out industries…and reduces costs so that new industries can arise. It’s the ‘destruction’ that Schumpeter’s ‘creative destruction’ needs.

The more we think about it, the more we’re beginning to like depressions. After scammy bailouts and bogus recoveries, a depression would be something to look forward to.

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. 

  • John

    29 trillion? We are so screwed!!!

  • KP CHEN

    A depression also finally exposes what we have always taken for granted, or hold dear and near, one day may no longer …

  • Andrew B.

    BB, you talk about gold only as a trade with ideas of when to go in and when to go out. But more and more economists of the non-crackpot variety are beginning to ponder the role of gold in future monetary systems. And you yourself said some time ago that the Feds are the problem and gold is the solution. What about this angle? What do you think? Will we ultimately have to sell gold at the peak, or exchange it for the “new dollar”?

  • Dave

    Banning the private ownership of gold isn’t to unreasonable to contemplate either.

    If there is a major collapse of the international banking sytem I hate to think of what screw ball currency will be implimented to replace the current ones.

  • Boris

    How depressing.

  • Deft

    I’ve seen the brainwashing of Americans first hand going door to door for Ron Paul. They don’t know the country is broke. They won’t give up the Empire. They would come after our gold. There are a lot of good people, but just as many bad ones. Protect yourself.

  • Europo

    The world is paying for all this printing. That is the reazon we do not have much inflation here in US. Once the world start refusing the Dollar. You will see how much one will have to pay for commodities.

  • CT

    Cyber gold, paper gold, metal gold. All just concepts of agreement. Nothing more, nothing less.

  • TEF

    The week of 19 December will be a valuation tough one for holders of equities, commodities, and gold; but a good one for long term US debt holders.

  • Parr

    Deft is right.

    Our state owes our pension fund billions of dollars and no one I work with is even aware or concerned about this fact. It is like everyone is sleep walking. When they finally figure out what is going on there are going to be some very angry folks. Neighbors, law makers and even some relatives are going to not be happy that you have prepared. Fearful people turn angry and aggressive. Perhaps it is past the time to try to educate others around you and it is time to quietly prepare. When government handout programs are cut back there are going to be some other very angry folks added to this mix. It might be better to simply fade into the background and look like everyone else. Let the DR and Bonner keep doing the Paul Revere alerting. But closer to home it might not be the best thing to be known as the guy who talks about collecting gold. Think about the hoards that will show up outside of the Bonner residence. It will look like a zombie movie. All those zombies surrounding his estate moaning and calling out for “gold.”

  • Bruce Walker

    “The nice thing about being broke is that once you’re broke, the fear of going broke has been removed”. -Great wrods of wisdom from a homeless man in Smyrna, Georgia, circa 1999… And a lot of truth in it as well.

    The worst is always worse when contimplated as something in the future than something already at hand. The human spirit is, afterall, a very adaptable sort of thing.

    Nevertheless, there will be some who are more traumatized than others when the “creative destruction” is finally allowed to take its course.

    At the very top of that list will be childless couples with Volvo station wagons who have doted on their dogs for the last 35 years. The dog people I call them. Typically dual income households with no kids, two pure bred dogs, who have hiterto enjoyed a very high standard of living. Couples who have been banking on the idea that someone else’s kids would be willing to support them in their retirement via confiscation of their earnings.

    Somehow, I don’t see much chance there will be any pity for these people. Once the 401-k is gone, social security is gone, and everything they own is gone, they will discover the great downside of their selfish self-indulgent lifestyle while the goose hung high.

    If you want to go short on such an outcome, go short pure bred dogs. 8 years from now in 2020, you won’t be able give a pure bred dog away, even with papers and a pedigree going back to Leona Helmsley.

  • Anselm

    It’s not the personal self-indulgent lifestyle…

    It’s the societal theft initiated at the governmental level, the political level.

    Unfortunately, I don’t see any way to really prepare unless you’re going to live in the wilderness and can sustain yourself. This Power attempting to nullify our rights amd control us is actually global in scope.

    How can anyone doubt that they will seize your gold, guns and any stored food?

    In fact, they’ve been building and are right now at this minute – staffing concentraion camps all over the Nation.

    Now is the time when we get to see first- hand, and understand why all of those people didn’t leave Germany when everyone should have seen what was coming.

  • Anonymous

    Yes 29 trillion indeed ! Their plan to destroy America is well underway – They create as much debt as they can for America and invest billions into the Far East and use their influence over the Far East to make it profitable for others to do the same with their money. The idea is to build up the East at the expense and destruction of the West. This is because these international bankers of London and New York have never considered themselves Western in the first place and they themselves originate from the East and hate the West. These Illuminati bankers of London and New York are the prophesied 2 horned, second beast of Revelations. (the First beast was the Catholic church whose wounded head is being healed by the second beast that now rules the world) They funded communism while sitting in New York pretending to the world that they oppose it and they funded Hitler while pretending to oppose it as well. If they cant get what they want from their corrupt politicians, they they create wars – EVEN WORLD WARS – to get what they want. What better way is their to rule the enemy than to weaken them by making them fight each other ? Once we are weakened sufficiently through economic means – then the East will invade !

  • Anonymous

    By following the advise of the Daily Reckoning – which included buying gold and silver we are fighting this international – ant-western conspiracy. Another tip is to TRY not to support the Eastern products as much as possible as it not only makes the Far east more powerful, but pushes our own people deeper into poverty. Don’t invest in their countries and don’t invest in their imported products !

  • CT

    Meanwhile the Chinese continue building their tunnels and continue their cyber attacks. Yea invest in China to everyone’s peril. Yea buy China.

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