Bill Bonner

So far, so good.

Things keep happening, more or less as they should.

That is, the US and European economies keep falling apart. And the fixers keep failing to put them back together again.

Just as we expected.

Trying to fix a depression it is not only expensive…. The US government spends $1.60 for every $1 it receives in taxes. This is a recipe for a disaster, not for a recovery.

Worse. It actually prevents a real recovery from happening, by blocking the market’s natural self-healing system

Let us ask you this, dear reader: what’s the cure for a depression?

Answer: a depression!

A depression reduces asset prices, consumer prices, and interest rates. This makes it possible for investors and business people to redirect their efforts on projects that will work. A car wash, for example, may not be a good investment at $100,000. But at $50,000 it might produce good cash-flow.

An investment may not make sense if you have to borrow money at 6% interest. But at 3%…the numbers work.

In an ideal world the price of labor falls too. You may not be willing or able to hire extra workers at $10 an hour. But how about at $5?

Trouble is, the feds interfere with these self-healing trends. Minimum wage laws prevent employers from taking advantage of low-quality labor at low prices. Unemployment compensation keeps workers from discounting their own labor. Zero interest rates and bailouts keep the zombies on their feet. Even in the best of circumstances — that is, in a free market — labor rates tend to be “sticky.” They don’t adjust quickly. With the feds applying so much glue, it’s amazing if they can move at all.

But eventually, a depression works its magic. Prices fall. Investors are wiped out. Businesses go bust. The ‘destruction’ of the capital stock frees up both money and labor for new applications. The ‘creative’ part can begin.

Not this time. The feds have created a darkness without a dawn. The glass is 100% empty. There are plenty of clouds. But no silver linings.

There are now more than 6 Americans competing for every job. A normal recovery would see the US economy adding about 500,000 new jobs a month. Instead, last month it added 120,000 and economists hailed it as a major victory. Of course, it needs to create 150,000 jobs just to stay even with population growth. As it is there are 7 million fewer jobs today than there were in 2007…and the number of unemployed people is growing.

In 2007, just 10% of the unemployed had been jobless for 6 months or more. Today, the total is 40%. And with so little growth in the job market, many of these unemployed people will never work again.

What’s the problem?

Truth is, no one really knows. The simple explanation is that there’s a Great Correction going on. But even before the Great Correction, decent jobs were disappearing. The recession of 2001 was followed by the first “jobless recovery.” But every recession since the 1970s has been succeeded by a weaker and weaker recovery.

The feds don’t really have any idea why this is. Every politician and policy wonk suggests the usual remedies — more education, retraining and infrastructure investment. But there is no evidence that any of these things would really make the job picture much better.

As we explained earlier this year, the education industry has been a money pit. Huge amounts of money have been “invested” both by parents and the feds. It doesn’t seem to have helped the economy very much. True, a college grad is more likely to have a job…but only because he’s taking it away from someone without one.

The unemployment problem is a “tough nut to crack,” says The Financial Times.

Of course, we could fix the jobless problem overnight. But people wouldn’t appreciate it. We would simply remove all subsidies for unemployed people…and all restraints on hiring. Labor prices would fall fast. Within days, we’d have full employment again.

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.

  • Juan Ortega

    Heard on the radio that some economist (Paul Krugman?) said the USA should own up to the fact that it isn’t a “correction” nor a “recession”, but another Great Depression.

  • http://www.investorsfriend.com The InvestorsFriend

    Okay then, remove the unemployment insurance and such and take aaway the minimum wage rules and bring on full employment.

    But the zombies get to keep their high government wages right?

  • Asok Asus

    And while you’re at it, kick out the 13 million illegal foreigners. That alone would create 13 million new jobs for U.S. citizens.

  • http://SupremeLeader.org/ SupremeLeader

    What percentage of the US population know of and read these columns?

  • TiaMaria

    If there is no work to be done, no one will be hired to work, regardless of their price.

  • http://www.webdesignlasvegasx.com lasvegaswebdesigner

    @TheInvestorsFriend just make all those government agencies that keep zombies employed disappear… None will even notice.

  • Hayden

    I recall reading a comment (and I’m afraid that I don’t recall the name of the wag)that stated:
    “The war cry of all bureaucrats is,”We can too fix Humpty Dumpty! We just need more horses and more men!”
    When the great egg goes “SPLAT”,enterprising folks will make omelets.

  • Bruce Walker

    Full employment never lasts long before the push to unionize raises its head to “fix” things.

  • mr. lichterbusch

    With jobs going over sea’s, mostly 2 china, how r american’s suppose 2 find WORK, at any price. I for one am glad that china is stealing company sercerts.
    It servers the BUMS right 4 their GREED…….

  • Pingback: Trackback()

  • Pingback: Trackback()

  • Pingback: Trackback()

Recent Articles

The Euro Isn’t Dead

Peter Schiff

Peter Schiff reports on the broken spell of confidence surrounding the dollar, and how it may also reverse the fortunes of other beaten down currencies...


Gold Miners, RIP…

Bill Bonner

Bill Bonner explains why you can count on central banks to exaggerate the commodities cycle with more cheap credit...


How Historic Lows in Housing Will Set You Up for Incredible Gains

Greg Guenthner

First, we’re dealing with the tightest real estate market in a very long time. Homebuilders haven’t been building for the past decade. And the rental market? Crazy. Rents are sky-high and the rental market these days is tight as a snare drum. I reminded you back in June that the average rates for rental houses have risen by more than 13%.


Matt Insley: “If It’s Sunny, WE’RE Makin’ Money”

Matt Insley

George Soros, Steve Cohen, Israel Englander, Leon Cooperman, Michael Platt, Daniel Loeb, James Dinan, Stephen Mandel Jr., Larry Robbins and David Einhorn… That’s a list of billionaire fund managers that have a stake in the solar sector. Indeed, the solar sector is continuing to warm up with big money…