When Economists Doctor Up More Credit to “Contain the Depression”

Reckoning today from Waterford, Ireland…

Our new book is also going to explain why economists are completely incompetent. They claim to know things they could never really know…and to be able to do things they couldn’t do in a million years. As a result of their conceits and delusions, trillions of dollars have been clipped from the world’s GDP…billions of people are poorer…their lives shorter, meaner…with less stuff.

Economists were largely responsible — usually in their policy-making roles — for the huge credit bubble that took debt to GDP in the US from 112% in 1972 to 296% in 2008. They told the feds that they needed a “flexible” currency. What they got, of course, was one that was flexible in one way only — it stretched out…but never came back. Credit expanded 50 times in the last 50 years.

Then, when the debt bubble blew up in ’08-’09, economists stepped in again…this time to prevent the private sector from setting things right. Instead of letting a crash and quick depression wipe out the excess debt quickly, the feds engineered a “contained depression” which can go on for decades.

What contains the depression? More credit!

Deficits…bailouts…subsidies…and the lowest interest rates ever. You can look throughout the developed world; the highest interest rate offered by central banks for short-term money is only 0.75%.

And now economists are warning that the US tax economy could fall off a ‘fiscal cliff‘ at the end of the year. Tax rates will go up. Automatic spending cuts will come down hard. This will allow the depression to break out of its cage…or so they worry.

“Stop, before it is too late,” they say.

Over at the Pentagon, for example, contractors are forced to worry that their next boondoggle might be cut off. Military cuts threaten Barack Obama’s program of “Strategic Guidance,” says an article in the Financial Times. In addition, one million jobs could be lost! The US would fall into real depression!

If only!

Since the crisis began, private sector debt has gone down…but only to 250% of GDP. That’s still more than 2 times what it was when the US still had honest money. Much of that debt must be “bad” — in the sense that it couldn’t withstand a financial crisis…or wouldn’t still be on the books were it not for the feds’ clumsy meddling. That’s why nature, in her wisdom, provides us with natural debt-cleansing episodes…also known as depressions.

More to come…


Bill Bonner
for Markets and Money

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Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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We’re on the third bounce of the JPM whale and we’re presently at $7.5bn and acknowledging the counting is open because there are positions still open. Dimon’s apparently acknowledged his first official internal notice was at +$700m. No word on what he was told was the probable exposure whispered through the Chinese wall of his office’s en suite toilet. http://www.bloomberg.com/news/2012-07-13/jpmorgan-s-botched-trades-may-generate-7-5-billion-loss.html I reckon the .1% neo-liberal managerialist cum corporatist crowd were all literally mad ‘trecker fans because their most commonly featured pronouncement is “make it so”. When you hear mushmouths like Stiglitz funded to travel the world crying out that sovereign… Read more »
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