Bill Bonner

We’re attending a financial conference here in Vancouver. Yesterday was actually the tenth anniversary of The Daily Reckoning. A group of readers took your editor to dinner and roasted him.

He was flattered…and grateful for the attention.

But we’re not kidding ourselves. Readers come up to us at conferences and tell how much they enjoy reading the DR. We wait for questions about Quantitative Easing, the Trade of the Decade, Empire of Debt or any of our other important themes. Instead, what they want to know about is:

“How’s your gardener doing? What’s Maria doing in Los Angeles? Did you ever figure out what happened to your missing cows…?”

Readers know what’s important. They want to know more about what really matters.

Still, we are foot soldiers in the lonely battle against economic claptrap; we must march on!

Yesterday, came more evidence that the depression is over. The Dow shot up 188 points. From a technical point of view, if you believe that kind of thing, it looks as though the rally has farther to go. We recall setting a target of Dow 10,000. Perhaps we will get there.

Oil traded at $67 yesterday. Gold rose to $954 and bond yields on the 10-year T-note rose to 3.7%.

All of this sounds vaguely inflationary…and vaguely bullish. Besides, Goldman stock is rising. And as we all know, what’s good for Goldman is good for the country.

Wait…we’re kidding…right?

Yes, we are kidding. What’s good for Goldman is generally bad for the country. Goldman makes money by separating investors from their money. Nothing wrong with that; someone has to do it. But the big banks are most profitable when speculation is rampant and debt is growing. That is, when people are going further and further into debt…and speculating on rising asset prices. We know you don’t really prosper by borrowing and gambling. But that doesn’t make casinos unpopular, or lenders unlawful. Bankers, like undertakers, benefit from human frailty. At least, they benefit as long as the government bails them out. Otherwise, they fall victim to their own human frailty.

But this is a minority opinion. Most economists disagree with us. And there are so many of them…if all the economists who disagreed with us were laid end-to-end…it would be a good thing. They believe that the economy is stabilizing…and on its way back to normal. Trouble is, ‘normal’ ain’t what it used to be.

Wall Street banks are making money, ’tis true. But they’re not financing new businesses…or factories. They’re not aiding the process of capital formation nor allocating capital in ways that will result in new jobs and new industries. Instead, they are refinancing old debts…and speculating on zombie assets. This will not increase the real wealth of the planet. Instead, money just changes pockets. Which, of course, raises an interesting question; where did all this money come from?

If Goldman’s pockets are fatter, whose are thinner? If the four biggest banks earned a combined $11 billion in the last quarter…who did they take the money from? Who’s got that kind of money?

Meanwhile, we found out this week that the feds have wagered an amount equal to 170% of GDP in their attempt to bailout the world (more below). Part of that money was used to buy Wall Street out of the investments that they didn’t want. Which ones were those?

Well, the ones that didn’t work out.

No wonder the banks are making money.

But while the banks are making billions, cometh another report from another sector – manufacturing. Caterpillar announced its results for the second quarter too. Profits were down 66%. In other words, while the banks were making money speculating with taxpayer’s money, Caterpillar was trying to make things and selling them to customers. Caterpillar not only makes things; it makes things that help other companies make things. Things with motors…big things…things that make noise and give off exhaust…things you use to dig holes and move dirt…things you need if you’re going to have a real economic recovery. Unfortunately for CAT, these things aren’t selling.

So what does this tell us? Well…it suggests that there is no real economic recovery at all. The real economy is suffering…sinking…and shutting down.

The banks are not earning their money helping Caterpillar expand. They’re making their money not because of a recovery, but because there isn’t one. In other words, they’re profiting from the financial stress of the early stages of a depression. There’s a post-crash bounce…and the government is sending a lot of money their way.

As for a real recovery – forget it. There’s no evidence of it. Unemployment is getting worse. Housing is still going down. Profits are going down. Those aren’t the things that presage a recovery…they herald a deeper, darker depression.

The depression darkens because people are not just being laid off – their jobs are disappearing. They do not get called back to work. Instead, they stay unemployed until they run out of unemployment benefits…and then the statisticians in Washington drop them off the unemployment rolls. Currently, the first batch of those people to reach the end of their benefits came this week. Last we looked, the Pennsylvania legislature was passing a law so they could continue drawing benefits for a few weeks more.

We’ve mentioned John Williams and his excellent service called Shadow Government Statistics. He looks at the numbers and figures out how they are twisted and tortured…and then figures out what they would be if they were treated properly. Currently, the unemployment rate nationwide officially is almost 10%. But if you computed the unemployment numbers the way they did back in the Great Depression, Williams says one in five people are out of work. In some places the figure is as high as one in four.

In other words, the unemployment numbers are already beginning to look like those of the Great Depression. But that’s true of almost all the numbers. They’ve all got a ’30s era look to them. And if you stopped water boarding them, they’d tell a similar story. Almost all the indicators are worse than any we’ve seen since WWII.

Unemployment, trade, defaults, foreclosures, bankruptcies, prices, manufacturing…you name it and you have to go back to the end of WWII to find similar numbers. Of course, at the end of the war, the wartime economy shut down. Millions of people who have been in uniform…or making tanks and airplanes…were suddenly out of work. Economists thought the economy would go right back into the Great Depression. Instead, it boomed.

Those soldiers and their families had savings. They had pent up demand – they hadn’t bought a new car in 10 years…they were young…they got married…they had children…they needed baby cribs and houses. We remember going to look at one of the first major suburban developments as a child – Harundale – in Maryland, built by the Levitt Company.

It was a horrible place, but you could buy a house for peanuts…on credit. And it set the pace for the suburban consumer credit expansion of the next half a century.

But what was normal for so many years is not normal any more. Now, consumers are paying off debt faster than any time since 1952. The government, however, is making up for them. Goldman may no longer be able to push more credit onto the public; but it can push one heckuva lot of debt onto the public sector. Wall Street firms helped households ruin themselves in the Bubble of 2003-2007. Now they’re doing the same for the government, helping the feds raise money on a scale never seen before in human history.

As we said…no wonder they’re making money. Too bad.

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.

  • Jason

    My father believes that the economy is recovering. He works in the scrap business dealing in specialty metals; he said that their orders have been going up and they are going to have to call people back to work.

  • Kurt

    “I see” said the blind man. The debt ridden American consumers without a job, will be able to borrow more against their homes that are underwater and spend it to buy the goods made in China, thereby providing the necessary lift to pull the American economy out of this Depression. Am I right or am I right?

  • Mason Palmer


    You write with ease and brilliance; it’s a pleasure to read your work. Your Goldman piece is on target. In my view, Goldman and the Fed (but I repeat myself) are the enemy, having overthrown the republic. Through legislative capture, Goldman reigns unopposed. Your column speaks truth to abusive neo-feudal power. Will we have pitchforks and torches ending this cycle of unprecedented manipulation and theft? Will we need another propaganda-driven crusade to distract a people pauperized by unchecked, unbalanced oligarchy? Both, in unpredictable combination? Revolution and war are fearful and sickening options. So much for the bang; how about the whimper? Maybe we’ll just muddle through painfully with Continental socialism and high inflation, Goldmanites gaining at every turn…en bas les aristos!

  • Harry

    I agree with Jason above. I have talked to several small business owners that are getting increased orders and looking to hire. We’ve come out of this thing quickly and the markets are reflecting that. This recovery feels good and right. Will you ever stop with the gloom? That’s soooo 2008.

  • Doug

    Harry if you have been reading this site for as long as I have, The daily reckoning has been predicting a bounce back to 10,000 for many months now, but that does not make this a recovery only a dead cat bounce . I have been reading this site for years and while their timing is not perfect . I believe almost every long term prediction has come true from Fannie failing, to the tripling of gold and oil prices ,as well as the fall of the dollar . Why no one is looking forward to a major depression you would be wise to heed their advice, as they were one of those people who saw the housing bust coming when all the talking heads were cheer leading it.

  • Andy

    Jason & Harry, the concern trolls that Bill needs to help give him the proper balance. Well guys, I work with small to medium size business owners all day long, 5 days a week and often evenings and weekends as well, and what they are telling me is that to the extent that they are keeping their heads above water (the ones who are still in business) is that they’ve cut expenses deeply (including layoffs) and have seen their businesses drop off from 20 to 50% with no recovery in sight. When they do sell things the margins are typically a lot lower or non-existent. Maybe you guys just happen to know the right people, or maybe the territory I’m working in is just the worst territory in the world (CA, NV, OR, WA, ID), but I think I’ll put my money on Bill’s analysis rather than the Concern Trolls.

  • Motion

    The consensus from earnings is that there will not be a recovery this year. Oil prices are inflated and this acts as a hedge against deflation. I don’t know what Goldman does or doesn’t do to make their money. The way I see it is that the layoffs are permanent for this year. American companies have to start producing less and with less employees they should be able to and make some kind of profit. That is just a piece of the pie. The question is what happens to the unemployed? Can we create another bubble for them? Will they be put out onto the streets? Will the Government create jobs for them? The only thing that looks certain is the sad news that there will no be a recovery this year.

  • Rocinante

    Great article in Rolling Stone (believe it or not) about Goldman.

  • JJ

    I wonder how long it will take for the flow-on effects to reach Australia….
    It is pretty rosy here still, and with China ramping up there purchases of our commodities again the government is singing of better days ahead. I am not so sure..

  • Bloomer

    The sun is beaming here today, in Vancouver, and there is glimmers of hope for our battered economy. But as the summer sun fades, Autumm will soon arrive at our coastal city. With the change of season (and investor sentiment) will come the overcast skies and the heavy rains. I hope Jason and Harry carry an umbrella.

  • Tony Frank

    I believe we would all like to see a near-term recovery. However, the facts suggest otherwise. Of course, one can expect a “statistical uptick” for a couple of quarters. After that…………….

  • Bob Burgess

    Yes, we bounced back after the great depression, but America actually had a manufacturing base back then. Manufacturers produce things and create real wealth and jobs. High school grads could get good paying jobs back then. Today’s manufacturing base is badly eroded. Multinationals sent 180,000 US jobs to Mexico—before NAFTA. We are in trubble, and if we are so is the world. I’m seventy years old, and I hate it for my grandchildren and even my adult children.
    PS: my thanks to Bonner, Kevin Phillips, David Korten, et. al., who bother to write and inform us (who read) as to what is going on; we’ll never get it from the press. If they really did their jobs, they would not get invited to the table.

  • Simon

    America had it all, and blew it. The rest of the world has little sympathy for you. You bullied or tortured those who don’t agree with you, brought down democratically elected governments who were “against American interests”, squandered more than your fair share of the world’s resources and are the only nation to have annihilated a civilian population with nuclear weapons.
    You guys just don’t get it: the world is sick of you.
    And this letter is from a “friend/ally”
    Imagine what your enemies think!

  • Bob

    Simon’s last post is right on in all that he says. I would only add that governments now serve their clients: Multinationals, GATT, NAFTA, World Bank, IMF, WTO, etc. These guys are destroying the planet as well as corroding the quality of life worldwide. Americans naively go to the polls thinking their votes will change things, but votes cannot compete with the huge bribes (euphemistically called contributions) with which the big players buy off Congress and other world governments. Some of us do get it, Simon.

  • oldbill

    If Goldman had a decent yield of say 10% and a PE of 5, then it might be a good company to own. However, since it distritutes all its profits to its employees, why would anyone own the stock?
    We look forward to the day when these people are marched out in the steel bracelets to their just rewards.

  • JMR bayou bobby

    re: summer in Vancouver–usually lasts about an hour and a half

    re: small business recovery–some sectors/regions will do better than others and at differing times

    re: economists–if you laid them all end to end, they wouldn’t go anywhere

  • Sparkie

    Right on Simon!!! The latter days of Rome r upon us.

  • Ali

    The fact is that our capitalist system and how the economy works is out of balance since early 70’s . In other word the ugly shift from real & just economy “The producing capitalism” that was helping every body and made Amerca the dream land, to “the financial capitalism” which started with the closing of gold window at Nixon time.We’ev been living the bubbles since then that serve the Elite.

  • Jimbo

    Our greedy, liberal, wealthy aristocracy sold us out in the name of “Globalism”; lining pockets for their grandchildren, to soften the decades of no growth turmoil ahead, expecting them to lead us to the “Promised Land”. Until we limit terms and get back to our founder’s vision of government-“by the people, for the people” (not the few) we’ll wallow in woulda, coulda and shoulda. Maybe Palin will lead by example-distancing herself from the media-driven moguls greed.

  • Bors

    Jimbo is correct. “by the people, for the people” is what we need to look at. Change will not come by thinking that we can elect someone to do our job. There will be no change until we change ourselves.

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