The Fight Between Greed and Fear, Boom and Bust, Expansion and Contraction

The fight goes on!

We mean the fight between greed and fear, boom and bust, expansion and contraction.

This is a fight that goes on all the time. But it is usually kind of a ‘cold war.’ Years go by without much activity. Stocks meander. A few companies go bust. A few boom. Interest rates…the dollar…and commodities are fairly steady.

Then, there are periods when all Hell seems to break loose.

We’ve been in a shooting war for many years – since the bubble blew up in the tech sector at the beginning of the ’00s. After 20 years of boom…suddenly we were in a bust. But the fear didn’t last. Out came the feds with their big guns…both monetary and fiscal…and pretty soon it was boom again…and then bubble.

You know what happened next. The housing/finance bubble blew up with subprime. Then, the stock market gave way. And then the economy was in the worst contraction since the ’30s.

Of course, the feds fought the correction with everything they had. In 18 months the Fed doubled the nation’s monetary base. Federal spending went to the moon too – with budget deficits over $1 trillion…and no end in sight.

All this firepower had an effect. The banks were able to pay their bonuses. And big players were able to borrow at nearly zero interest and gamble against the dollar. So, the financial world could slide back into party mode.

But it was a wild and desperate kind of partying…like Berlin in 1945, as the Soviet Army approached the city. Because, outside the financial markets, fear has never gone away. And on Friday, it should have been obvious even to economists that there’s not much to celebrate.

“Jobs gloom hits West’s recovery hopes,” says a headline.

After much anticipation of a stable jobs picture – or even rising employment – the figures came in showing that the US economy is still losing jobs.

About 7.5 million jobs have disappeared since the contraction began. All told, since the fighting began in January 2000, the US economy has not created a single new job…despite steady population growth.

As for the stock market, it too is no higher today than it was 10 years ago.

The battle between inflation and deflation – boom and bust – has been hot for a decade. Why? Because the feds try so hard to prevent nature from taking her course. Normal markets are never entirely stable. They boom and bust. But the busts happen naturally…and usually, quickly. People who make mistakes are punished. They take their lumps. The economy recovers.

But since the mini-recession of 2001, the feds have fought a pitched battle to keep the markets from doing what comes naturally. Ben Bernanke denies it, but their intervention caused the huge bubble in housing/finance of the 2002-2007 period. They put in so much new money and credit that it looked like they had won the war. Stocks hit record highs…and houses too.

But something that has to happen is going to happen, one way or another. Corrections have to happen. And now, the US economy is correcting – like it or not. That’s the meaning of Friday’s unemployment numbers. The jobs of the bubble époque are going away. Employers are reluctant to create new ones. They want to see a real recovery before they obligate themselves to more fixed expenses.

So stay tuned. The war isn’t over…

Bill Bonner
for Markets and Money

Bill Bonner

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 Markets and Money.
Bill Bonner

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DJIA is going up… American home prices are still falling… “The economic recovery is here, or at least next month, or…er…was it last month..” squeal the CORPORAT-STATE FASCIST PIGS. Recently, a rather successful retired businessman said to me: “The government has got to do something…”. Today, a much more modestly succesful businesswomen, who’s business is actually growing midst the ruins, looked at me, when I simply stated (refering to the rascals in DC), “you can’t spend your way out of bankruptcy…” “I wouldn’t bet on that” she said…. What happen to the people who use to believe they not only… Read more »
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