World Economy Has Never Been in a Fix Like This

We haven’t gotten to Bedford Springs yet. We’re still sitting in the airport lounge in Paris. Summer is over. It’s back to work…12 hours a day…just like we’ve worked for the past 39 years.

When we were in college we had no money. In the summer we had to work two jobs to try to save enough cash to continue. One summer, we worked in a boatyard in Annapolis early in the morning…then, we did an evening shift painting television towers. Painting the towers was such dangerous work our poor mother begged us to quit. But the money was good – $5.25 an hour – so we had to keep at it. More about that in a minute…

We’ve only got a minute before they call our flight, so we’ll make this short. Nothing much happened in the markets on Friday…except that the price of gold rose $11. Gold seems ready for another attack on the $1,000 level. Will it get there? Maybe…maybe not.

Humility! Humility!

We have to remember that the world economy has never, ever been in a fix like this. We don’t know where it will lead.

The big picture is that the credit cycle – expanding since the end of WWII – seems to be contracting.

“The joy of buying falls victim to recession,” says a headline in today’s International Herald Tribune. The article tells us how people are planting gardens again…saving money…making do.

This is likely to be a fundamental shift, not a transient one. But – humility! – what do we know?

What we suspect is that the upward trends of the last half a century have now reversed. We’re in a period when the excesses and mistakes of the boom/bubble period must be corrected. A new model for the world economy must be found – because China can’t continue to sell products to Americans if Americans can’t continue to buy them.

But there’s more to this big picture. Never before in history have so many government officials been so sure they could stop a correction. And never before have they had more ammunition at their disposal. The numbers are all over the place. And they’re huge. The Obama administration, for example, expects to run $9 trillion in deficits over the next 10 years – and that number is based on a recovery! Imagine what will happen if the economy doesn’t recover?

Here at Markets and Money, we don’t expect a recovery, not now…not never. Because the old model no longer works. Debt got too big…too expensive…too risky. Something had to give.

But what gives now? What happens when a world economy of $50 trillion per year tries to correct and governments try to stop it? What gives when the world’s largest debtor borrows $9 trillion trying to prevent nature from taking her course?

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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7 Comments on "World Economy Has Never Been in a Fix Like This"

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Robert Blain
I get the Daily Reckoning on my home email and like what I read. What I think Bonner is missing is the destruction of the US manufacturing base.That manufacturing base is the key to the US swimming or sinking. Yeah, precious metals are a good hedge but they aren’t the entire picture: you can hold up a stringer full of fish(gold profits), but if the fishing barge is sinking what good is that? In the long run we are headed to war with the Chinese:we gave our industrial base to the Chinese, created huge Chinese appetites for raw materials, and… Read more »
Ken Seech

I feel the world economic crisis will mean boom time for Sub Saharan Africa
At times like these, investors must bring their money to these countries where there is abundant resources and a willing workforce


Rober blain is wrong. The industrial base in the US has not been destroyed.


The facts” story in mid-February, the U.S. “by far remains the world’s
leading manufacturer,” producing goods valued at a record $1.6 trillion
in 2007 — nearly double the $811 billion produced a decade earlier.
Indeed, the AP writer noted, “For every $1 of value produced in China’s
factories [in 2007], America generated $2.50.” Not bad for a country
that doesn’t produce anything anymore

dsylexic: Perhaps everyone is wrong on that one? Because that data is from 2007. A time of inflated prices, including corn prices due to the ‘ethanol’ debacle. It would also be interesting to know how much of the $1.6 trillion was exported overseas, and how much was consumed internally. Because the US’s capacity for internal consumption has been somewhat hamstrung (eg, Detroit) Also…I wonder how much of that manufacturing is actually entertainment related (eg, Hollywood). What actually constitutes ‘manufacturing’? In Australia I think we have a similar problem – a lot of our manufacturing is simply outsourced to other countries… Read more »
Greg Atkinson

Pete just think of things that blow up other things, that is a big chunk of what the U.S. manufactures and exports. The problem with Oz is we do very little value adding, this is not the case with the U.S. Sure they have outsourced a lot of manufacturing but they still pump out everything from satellites to really good steak knives.


Good point Greg.

Still, I wonder how much their manufacturing output has dropped since the GFC started. Compared with China for instance.

The gap may be far smaller than was mentioned for 2007.


I have no quibble with the fact that it may dropped since the GFC. My limited pointed being that the US manufacturing has more than doubled in the last decade. Thats hardly what can call as “giving our industrial base to china”. It surely may have taken a beating in last years or so.But which sector of the economy didnt.

Just because the US doesnt make toys or kitchenware or clothes doesnt mean manufacturing is gone.It now supplies huge capital intensive equipment(think boeing,caterpillar etc)

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