We’re in a Depression, Stocks Gotta Get With the Program

Dear, dear reader…we’re sorry to write so much. We would have written less…but we just didn’t have time.

As expected…the Bubble Era was followed by the Bust Era. We’re in it now.

And as expected…the feds swung into action, busily making things worse. The last budget from the Obama Administration beats even our cynical expectations. We anticipated something stupid. But this is suicidal. Scandalous… More about that later…

And we expected that the crash on Wall Street would be followed by a bounce on Wall Street. We even guessed that it would recover about half of what had been lost – which it did. What surprises us is that it went on for so long. Even now, we’re still not sure it is over.

Yesterday, the Dow went down 26 points – after a couple of days of 100+ gains. Gold fell $6, which wasn’t bad considering how strong the dollar has been.

The dollar has gone up – but not exactly as expected. We thought it would go up as investors fled stocks and commodities. Instead, the dollar rose long before stocks and commodities began to fall.

Either the last phase of the bear market has begun. Or it won’t be long before it does. Stocks can go any which way they want in the short run – depending on investors’ delusions. But in the long run, reality catches up to them.

And the reality is: we’re in a depression. Stocks gotta get with the program.

But since the depression is invisible to most economists, the burden of proof is clearly on us:

“Retail sales continue to soften,” says one headline.

“Home ownership level falling to 67%,” say another.

“Personal bankruptcies up 15% from January ’09,” adds a third.

Bear in mind that a year and a half has gone by since the slump began. If this were a normal recession, we’d be recovering by now.

Instead, another report tells us that the unemployment rate has topped 15% in 19 different states. Now, that’s beginning to sound like a depression, isn’t it?

Another report tells us that now half the states are insolvent. Why? Tax revenues have collapsed, while the politicians failed to cut spending.

The latest GDP growth report came in at a surprisingly high reading over 5%. But take out the restocking of inventories…and the federal stimulus…and you have a negative number. Which means, the stimulus isn’t stimulating. It’s displacing. The private economy is giving way to the government economy. This week, for example, the federal payroll hit a new record – 2.15 million.

What do all those people do? More on that some other time…

Which brings us back to the federal budget deficit. At 11% of GDP, it’s matched only by the deficits of the war years – the War Between the States, WWI and WWII. Each time, lenders were willing to go along with such high deficits because the future of the country was at stake (or so they believed)…and because they were confident that the deficits would disappear after the killing stopped.

But this new deficit is a whole ‘nuther animal. First, there is no real war going on. Second, there is no end to the deficits. The Obama administration itself candidly admits that the deficits stretch out as far as the eye can see.

Now, a question: since this is not like the deficits of the war years…why would lenders act as though they were? Why would they accept the same rates of return? The deficits are shocking enough in themselves. But while the quantity (in GDP terms) may be equivalent to those of the war years, the quality is totally different.

Which makes us think lenders are making a big mistake. They look at the deficits and say: ‘we had deficits that big before…we survived.’

But these deficits are different. They are serious deficits without a serious war… They just get bigger and bigger. And they don’t go away.

Investors are going to be sorry they bought US debt…


Here at Markets and Money headquarters we’re happy with a depression. It makes us feel at home. Baltimore has been depressed for the last 40 years. Ever since the riots of the ’60s, the city’s been going downhill. There are whole blocks that could be bulldozed to the ground…no one would object. No one would be displaced.

The city probably peaked out in the ’20s. That was when the suburbs began draining off its best people. Then, WWII brought in different people – poor, uneducated, uncivilized hicks from the mountains and field hands from the South. They worked Baltimore’s factories and destroyed its neighborhoods. Then, the best of them moved out too. Now, there’s not much left.

Depression ain’t so bad. You get used to it. You even get to like it. Restaurants empty. Parking lots deserted. Offices, movie theatres, houses – all abandoned. There’s a sort of end-of-the-world, Zombieland quality to the city. Certain neighborhoods, we’re convinced, are inhabited by zombies. During the daytime they are deserted. The Zombies must come out at night…who knows?

Is the US headed towards a 40-year downturn like Baltimore? Probably not. Baltimore’s decline came about because its industries were no longer profitable…and its middle class moved out. America’s middle class isn’t going to leave. Who would take it?

On the other hand, her industries are clearly in trouble. When it comes to making things, other countries can make them better, faster and cheaper. The only exception we can think of is movies…and we’re not sure about that.

In the Bubble Era, fantasists such as Tom Friedman imagined that the US had a lock on innovation and invention. Even that seems to be slipping away. What’s the biggest new thing in transportation? The electric bicycle! No kidding. They are catching on in Asia and in Europe. Soon, you’ll see them in America too. Well, that is if drivers don’t run over too many bicyclists before learning how to share the roads with them.

Where were the electric bicycles developed? In China… Now, western firms are trying to copy the Chinese designs!

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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