06/25/10 Baltimore, Maryland – Another week gone by! Another week closer to Tokyo!
The Dow dropped another 145 points yesterday. Gold rose $11.
Will stocks recover today? Or will they just keep going down?
We’re not a soothsayer. We can’t read the stars…or interpret the charts. Still, we don’t mind taking a guess about the future from time to time. And don’t bet on it, by the way…
But we have a hunch that this market is headed down. Because now even the Fed can see that this recovery ain’t happening. The Fed announced that it was keeping its ultra-low interest rates ultra-low for an ultra-long time. That is, it extended its extension one more time.
Readers with even a faint recollection of recent financial history will remember that this is what Alan Greenspan did when he was still the smartest man in the world. He kept extending the period of emergency low rates after the mini-recession of ’01. The Fed kept lending money at less than the rate of inflation – for 4 years, as we recall. The result was the huge bubble of ’05-’07…and then came the blow-up of ’08-’09.
But times have changed. Now, the economy is no longer bubbling up. There’s no fire under it. Instead, it is cold. Shrinking. Contracting. Like a possum that has been hit by a truck but isn’t dead yet.
And even Tim Geithner must realize that all those trillions spent on ‘stimulus’ were largely wasted.
He’d argue that at least they saved the world from a dreadful meltdown. But none of us knows what would have happened. He’s got his opinions. We’ve got ours…
But it looks more and more like our opinions were right all along. We can scarcely believe it. We don’t take any forecasts seriously. Especially not our own. But what do you know….
Yes, dear reader…it’s Bonsai! Or whatever they say in Japan…
Years ago, we wrote a book, along with Addison Wiggin, predicting that the US would follow Japan down that long, lonely road…
…where people get older…sales go down…prices fall…
…where they save for their retirements, rather than spend, spend, spend…
…where real estate loses as much as 80% of its value over a period of 15-20 years…
…where stocks go down, down, down and don’t get up for two decades…
…where the government pumps money into arteries and veins but it can’t revive the economy…
It’s been three years since this slump began. We’ve seen the biggest stimulus effort ever mounted; and the economy is well, not dead…but it’s beginning to smell funny.
The roof fell in on the housing market this week. But you already know that…
What don’t you know?
Oh never mind, you know everything we know. Probably more.
What can we add? Just that maybe we’re right about this Japan thing after all.
When the crisis hit, we recall wondering where the surprise would come from. There’s always a surprise, isn’t there? Everyone expected a quick recovery. But there was no recovery. Neither quick nor slow. But that was too obvious.
It was taken almost for granted that if the feds pumped in enough adrenaline, they’d be able to get this beast upon on its feet and walking around again – just as they did after the ’01 downturn. Worst case, they’d cause an inflationary blow-off.
But what if the downturn lasted much longer than people expected? What if it dragged on year after year, despite the feds? What if it acted just like Japan, in other words?
We seemed 10,000 miles from Tokyo back then. Now, we’re much closer.
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 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.
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What I wonder, can the rest of the world handle the US and europe being in a Japan like slump? Or is this deflationary vortex too much for the developing world to offset..I am thinking the latter, IMO japan like slump is the best case scenario for the USA
The U.S. will take a different course than Japan.America’s economy was based on ever-expanding debt and money supply.It does not have the savings,social trust,and will of spirit to make it out this hole.In fact,Americans,in general, willfully chose comfort and material ease over moral strength.Now they don,t have anything left to fight with.Their priorities will be sorted out as the economy and equities find their true value.Unlike in Japan,people will turn on each other to place blame for their demise.