Bill Bonner

It doesn’t look good, dear reader.

The Dow lost 171 points yesterday.  Oil slipped closer to $90.  And what’s this…gold, up $22.

The debt deal is done.  And the Great Correction intensifies…as expected.

“Another bear market has begun,” says our old friend Marc Faber.

“After debt deal: economy in deeper peril,” says MSNBC.

Why would the economy be in deeper peril?  Actually, it’s in the same peril.  But most people didn’t know what peril it was in.  They had swallowed the “recession…recovery” story.  They believed it was just a matter of time before the economy got back on its feet.

But it’s not a recession.   And there will be no recovery.  Never.

It’s a correction.  And it has to do its work.  It has to reduce debt levels.  And that takes time…and pain.  Here’s Bloomberg, on the case:

Consumer Spending in U.S. Unexpectedly Falls as Hiring Slumps

Aug. 2 (Bloomberg) — U.S. consumer spending unexpectedly dropped in June for the first time in almost two years and savings climbed, adding to evidence that the slump in hiring is hurting household confidence.

Purchases declined 0.2 percent after a 0.1 percent gain the prior month, Commerce Department figures showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase. Incomes grew at the slowest pace since November.

The lack of jobs combined with wage gains that have failed to keep pace with inflation raise the risk of further cuts in consumer spending, which accounts for 70 percent of the world’s largest economy. Companies like Newell Rubbermaid Inc. are among those cutting forecasts for the year.

“Wages are very stagnant and that’s affecting consumer spending and consumer confidence,” Fed Chairman Ben S. Bernanke said in semi-annual testimony to Congress on July 13. “There is also ongoing uncertainty about the durability of the recovery.”

Friday’s news on GDP shows the double dip has arrived — an expansion of only 1.3 percent and consumer spending up 0.1 percent in the second quarter. Astonishingly low by any account. The debt ceiling trouble and lack of a longer term resolution to the deficit will make it worse.

Yes, dear reader, so far, so good.  Things are not looking up.  They’re looking down.  Which is fine with us.  This correction needs to speed up…so we can get it over with.

Where are we so far?  Houses in Florida, California, Nevada and Arizona are down about 50%.  Banks have about 2 million foreclosed houses in stock…and about 11 million more are underwater.  Prices will probably fall another 25% or so before bottoming out.

Unemployment, depending on how you measure it, is near depression levels.  About 14 million people are jobless…with nearly half of them out of work for more than 6 months.

A quarter of the people asked by Gallup pollsters said they thought the economy really is in a depression.

Are we back in a recession?  No!  The correction never ended…and it has a lot further to go.

Before it is over, stock prices will be cut in half.  Food stamp rolls will hit 50 million.  Houses will have lost 60% of their value.   And more than 20 million people will be out of a job.

Then, our problems will be over, right?  Then, things can begin looking up, right?  Then, the worst will be behind us, correct?

Wrong!

Then, the feds will really get to work.  Private citizens can make mistakes.  They can get themselves into deep trouble.  But if you really want to make a mess of things, you need government support.  Stay tuned.

Regards,

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. 

  • Speculator

    When the ceiling is raised above the customary height of 10 feet, gold or silver follows suit to seek a higher posture.

    After firing his sentiment seeking, emotion guided fire-and-forget speculation, MG abadoned his bunker mysteriously. Time to tell him that though his ‘speculation’ initially had gone off course a bit due to strong wind, it had landed on target spotlessly clean, CEP 0. Not to worry, even for a tomahawk, at times it is blown off course by strong desert breeze. When the wind subsides it will regain its deadly accuracy.
    What left to be speculated on MG is that, third party might have acquired his ‘speculation’ in black market and had fired the ‘speculation’ upon him and that left him much to be speculated. Anywhere a thousand blessings for MG.

  • Bruce Walker

    The “..and more thoughts” portion in the emailed version of this story is some of the best Bonner has written. If you didn’t receive it, you need to sign-up for it. In essence, he points out that the current bebacle can be traced as much to Republican as Democratic administrations. And yet the debate continues (the debt ceiling debate is a perfect example) as if there were some fundamental difference between the political parties, when, in fact there is virtually no difference. Yet, the denizens of this once great nation coninue on the debate, as if there is some virtue to be found in either one of the parties. For most of the partisans involved, its almost like advocating for a particular type of cancer, as if pancreatic cancer is somehow preferable to liver cancer. In the end its all the same.

  • eric

    Good styuff, Mr. Bonner and IMHO spot on!This huge correction that’s mentioned will not only happen in the US. Here, in the Netherlands, and other EU countries will be a big correction as well. As we find out soon there will be too many people for just a few jobs as people will discover (out of neccessity) that there’s more to life than consumerism. People are going to be creative in developing a new lifestyle: one that is more focussed on basic living (shelter, food) and slowly will discover that there’s more to life.

    A nice coincidence is that it will all start in 2012……as if the Maya knew ;-)

  • John

    I think our former prez, George Dubbya hit it right on the head, perhaps a bit prematurely but still right on target, “This suckers going down”.

    I have absolutely no doubt that this once great nation of ours is headed for the boneyard of history.

    None of the Pols, Democrats or Republicans seem to have the slightest interest in steering this Titanic away from the shoals. When it finally goes down, they’ll busy themselves rearranging the deck chairs.

  • Shanan

    I find it interesting that the mainstream press is losing faith in what they are being fed.

    Take a look at these Bloomberg stories:

    Bernanke Models Prove Faulty as Fed Forecasts Succumb to Downward Revision

    http://www.bloomberg.com/news/2011-08-05/bernanke-models-prove-faulty-as-fed-forecasts-succumb-to-downward-revision.html

    http://www.businessweek.com/news/2011-08-05/bernanke-models-prove-faulty-as-forecasts-succumb-to-change.html

  • gman

    “And yet the debate continues (the debt ceiling debate is a perfect example) as if there were some fundamental difference between the political parties, when, in fact there is virtually no difference.”

    one always hears this kind of talk when republicans are in positions of power.

    no difference? did the congressional republicans not balance the budget over the objections of democrats from 1995 to 2001?

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