Heavenly Recovery or Hellish Correction?

Time alone, yes time will tell
You think you’re in Heaven but you’re really in hell

– Bob Marley

Yes, dear reader, time alone will tell.

Are we really in the heaven of a recovery…or the hell of a Great Correction?

Well, actually, we think we know the answer already. It’s a Great Correction. That’s what we thought when it began in ’07. Everything that has happened since merely confirms it.

Subprime mortgages blew up in April of ’08. That set off the powder in the financial industry. In a matter of minutes the feds were on the scene too. Since then, they’ve put at risk as much as $12 trillion in the fight against the downturn.

And what has it wrought?

If this had been a normal recession, we would have seen a big up-tick in employment by now. Instead, 8.2 million jobs have been lost. NONE HAVE BEEN RECOVERED. Not since the troops were sent home after WWII have we seen anything like it.

We should also be seeing some signs of inflation by now. When people get back to work they also go back to spending. This puts pressure on recession-diminished supplies, leading to price hikes. Instead, we’re seeing the weakest pricing since Lyndon Johnson was in the White House and the Beatles were on TV. If they did the numbers properly, they’d show that prices were actually falling, for the first time since the Great Depression.

If this had been a normal recession, we’d also see the money supply increasing. By this point in the cycle, people should be spending, borrowing and investing, increasing the velocity of money. Instead, the money supply and private sector credit continue to fall.

We also should be seeing a relief in the housing sector. But noooo…

If this is a ‘recovery,’ you can keep it.

But if it’s not a recovery, what is it? It’s a Great Correction. It’s hell, in other words, not heaven.

But wait a minute. Hell is not so bad. And we’re not sure we’d like heaven very much anyway. Not if it meant returning to the bubble years. Not if it meant pretending Bernanke, Obama, Summers et al really know what they’re doing. And not if it meant going even further into debt.

The feds are trying to engineer a ‘recovery,’ a return to an economy that was not only unsustainable, but downright diabolical. It made people poorer and poorer. And now the feds are making them even poorer – spending trillions of dollars at taxpayers (or bondholders) expense – to try to stop the correction.

Why would they do such a thing?

The short answer: because they’re morons.

But you probably want a better answer, don’t you? Well, you’re not going to get it from us. As far as we’re concerned, the authorities are doing something so blockheaded you’d have to be retarded to do it.

When we think of what they’re up to we can still hardly believe it. They’re so afraid of a correction that they’re willing to bankrupt the nation to prevent it. It’s like a teenager who burns down his school so he won’t have to turn in his English homework. He might have been in trouble before; now he’s in worse trouble.

The Obama team has added $4 trillion to the nation’s debt in the last 3 years, fighting the downturn. Martin Wolf in The Financial Times and Paul Krugman in The New York Times argue that we have to spend even more to stop this devilish correction.

They’re terrified of hell. What they’re going to get is going to be worse.

Bill Bonner
for The Daily Reckoning