“Déjà vu” is a French expression that means…well, you know what it means.
For our purposes, we will use it to refer to the slumpy economy…and to the feds’ response. We’ve see it all before.
“Dans la merde” is another French expression…which refers to where you end up when the feds’ undertake to fix it.
But the Dow shot up 217 points last Friday. Gold went up $18. How to explain it?
With Europe on the brink of a blow-up (where it’s been for years)…China’s economy slowing down dangerously…and much of the rest of the world already in recession you’d expect investors would think twice before buying more stocks. After all, what are stocks? They’re shares in real businesses. When those businesses do well, the shareholders should do well. But businesses don’t usually do well in a recession.
Investors, however, seem to be following a different line of thinking. They are responding to two entirely different hypotheses.
1. The economy is doing well. That was the news in the latest unemployment report. Therefore it makes sense to own stocks and gold. As the economy improves, more people will borrow and spend. As they do so, interest rates and consumer prices will rise. Businesses will do better as their sales rise. Higher inflation rates will cause gold to go up, too.
2. The economy is not doing well. And the worse it does the more pressure builds on central bankers to ‘do something.’ What can they do? Only add more cash and credit. More liquidity will send both stocks and gold up.
Now, you will look at these two hypotheses and think you have discovered a sure thing, no? A can’t-lose proposition, right? Either the economy is doing well. Or not. Either way, stocks are going up! Win…win…right?
How about a third hypothesis? In this one, the whole world is sliding into recession. Britain and Europe are already there. Japan is almost there. The US is trailing, but not by much.
Recession is what should happen. The developed economies are still in a Great Correction. And the effects of massive doses of new credit…cheaper money…and a big increase in the world’s money supply (central bank assets have doubled since ’08)…are wearing off. Once again, the private sector is trying to correct its mistakes — shucking off bad debt however it can. People are being more careful with their money — which is why sales fall and unemployment rises.
Nothing new about this either.
And nothing really new about the feds’ reaction. Murray Rothbard described the feds’ response after the crash of ’29:
“If the Federal Reserve had an inflationist attitude during the boom, it was just as ready to try to cure the depression by inflating further. It stepped in immediately to expand credit and bolster shaky financial position. In an act unprecedented in its history [but repeated after ’08..] the Federal Reserve moved in during the week of the crash…the final week of October…and in that brief period added almost $300 million to the reserves of the nation’s banks. During that week the Federal Reserve doubled its holding of government securities…”
Then, as now, the big increase in money supply produced something that looked like a recovery. Rothbard continues:
By mid-November, the great stock break was over, and the market, falsely stimulated by artificial credit, began to move upwards again.
In our current episode, stocks have recovered from their ’08-’09 crash. Banks, teetering on the brink of collapse, were saved too — as the feds let it be known that they would do ‘whatever it takes’ to spare them from the consequences of their own mistakes.
And the leaders of the rescue, mainly Ben Bernanke himself, are hailed as heroes…having saved civilization. The 1930s had its heroes too. The first was Mr. Herbert Hoover, who had engineered rescue efforts following the Great Crash. Rothbard:
President Hoover was proud of his experiment in cheap money and in his speech to the business conference on December 5, he hailed the nation’s good fortune in possessing the splendid Federal Reserve System, which had succeeded in saving shaky banks, had restored confidence, and had made capital more abundant by reducing interest rates.
We know, however, that the heroes of the ’30s had not really saved the financial system from a day of reckoning; they merely postponed it…and stretched it out.
The crash and depression of ’20-’21 was more severe than the current crisis, but it was over within 24 months, during which time the feds made no rescue attempts. The washout after October 1929 probably would have been short and violent, too. Instead, the feds came to the rescue and turned it into a 20-year period, which included a Great Depression and WWII.
That’s our third hypothesis: déjà vu all over again, with more intervention, but no real recovery. Instead, the day of reckoning will be pushed into the future…and the whole correction process will be turned into a long, painful episode of little growth, high unemployment and periodic financial crises.
And here’s an additional forecast: Ben Bernanke will not want to re-live the ’30s. He will not want that déjà-vu experience. When the US economy is ‘dans la merde,’ he will give it more cash and credit…so that it is even further ‘dans la merde’!
Bill Bonner,for The Daily Reckoning
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.
Awh don’t worry. Dr. Ben will keep El Cid twitching for wallstreet…..
Nurse Tim: “I sterilized El Cid’s adrenalin
needle for you Doctor.”
Why should there be unemployment? Just like down on the farm there is never any shortage of useful work that needs doing.
Is it only minimum wages, unemployment insurance, the difficulty and expense of shedding staff once they are hired and other government meddling that keep unemployment high?
Depression was not Bad for Everyone?
The Depression was most depressing indeed for those who lost their jobs.
Stock investors too were depressed.
But what about the majority of people that kept their jobs and had no stocks. They saw lower prices on most everything.
The misery was NOT handed out equally.
Q3 causes inflation. The Fed is the instrument of inflation. Inflation is theft.
All previous central banks of the USA have collapsed because the counterfeited real money and produced fiat. They will deny it until the end. They expect it to collapse. It is inevitable and imminent 100 years is a long time to have created counterfeit money, about 202 Trillion. That’s a stack of Federal reserve notes (called $100 bills) from here up to the money.41 inches for every million.
Last week my subcommittee held a hearing on fractional reserve banking and the moral hazard created by government (taxpayer) insured deposits. Fractional reserve banking is the practice by which banks accept deposits but only keep a fraction of those deposits on hand at any time. In practice, nearly 100% of deposits are loaned out, yet depositors believe that they can withdraw the full amount of their deposit at any time. Loaned funds are then redeposited and reloaned up to the limit of the bank’s reserve requirements, compounding the effect.
As Murray Rothbard put it, “Fractional reserve banks … create money out of thin air. Essentially they do it in the same way as counterfeiters. Counterfeiters, too, create money out of thin air by printing something masquerading as money or as a warehouse receipt for money. In this way, they fraudulently extract resources from the public, from the people who have genuinely earned their money. In the same way, fractional reserve banks counterfeit warehouse receipts for money, which then circulate as equivalent to money among the public. There is one exception to the equivalence: The law fails to treat the receipts as counterfeit.”
THE NEW WORLD ORDER
I believe a global approach to analyzing the economic geology is imperative because the policy is one fostered by the Council on Foreign Relations which has strategy that leads to global government.. None of this is happening by accident (.pages 514 to 565 of the 5th edition (24th printing) of “The Creature From Jekyll Island” published September 2010 documented the currently unfolding plan to create a functional world government within the framework of the United Nations.. Often referred to as The New World Order by its advocates, the proposed global government is designed upon the principles of collectivism. It is a dream-come-true for the world’s socialist theoreticians, politicians, and technicians who see it as the ultimate laboratory for their social experiments upon mankind.
There are two mechanisms of power being readied at the UN. One is a military command to eventually control all national armies and super weapons. That is being accomplished under the slogans of peace and disarmament. The other is a world central bank, now called the IMF/World Bank, with the ability to issue a common money which all nations must accept. That is being accomplished under the slogans of international trade and economic growth.
Of the two mechanisms monetary control is the more important. the use of military force is viewed a crude weapon in the arsenal of world government to be used only as a last resort. the effect of monetary control is more powerful than mega-tons of atomic energy. It reaches into every shop and home, a feat that could never be accomplished by standing armies. It can be used with precision against a nation, a group, or even one person while sparing or benefiting all others. Military force may be irresistible but it causes resentment and political unrest that can smolder for decades. Since monetary manipulation is seldom understood by its victims, it does not incur their wrath. In fact the manipulators enjoy high social status and financial reward. For these reasons monetary control is the weapon of choice in The New World Order.
A future world parliament based upon the concept of minimum coercion and maximum freedom could be a wonderful advent for mankind. Without trying to cram all nations into a centrally-directed beehive, it would welcome cultural and religious variety. Instead of trying to place the world into a collective straight-jacket of rules, regulations, quotas and subsidies, it would encourage diversity and freedom-to-choose. Instead of levying even-larger taxes on every conceivable economic activity and destroying human incentive .in the process, it would encourage member nations to reduce the taxes that already exist and thereby stimulate production and creativity.
But the new World Order that is now incubating at the United Nations is an entirely different creature. Its members represent just about every dictator and warlord in the world. Its philosophy is built upon the socialist doctrine that all good flows from the state. Those who do not conform must be bent to the governments will or be eliminated. It cannot oppose totalitarianism for the simple reason that it is totalitarianism.
The post from Peter Palm above sums it up nicely. This is more than just ‘kicking the can’ … there’s an obvious agenda in play.
The elites are content to let the situation deteriorate, that just preps the serfs for there “solution”.
Bill can be just like the blindman running his hands over the elephant.
He notes the features only he can’t put all the elements together.
Personally, I think knows the truth, only it’s not expedient to actually state it publicly.
A New World Order is inevitable. Because is desirable. Though is terrifying.
well heeded advice
When you've got a room full of 200 oil insiders scratching their heads at current high prices, something's gotta give.
For most investors, it’s weird to think of stocks as their go-to investing option.
The petropoly has bills to pay and setting the price of oil was a simple way to balance their budgets.
Investors don’t seem to care that what's propping up their investments is what will ultimately destroy them: government monetary policy.
For the next decade the energy revolution will be likely confined to the US, displaying the robustness of American entrepreneurship.
Why the Sage of Baltimore’s commentary persists through America’s changing times.
After attending Platt’s oil conference in London I want to relay two important themes you need to know.