by
Bill Bonner Recently by Bill Bonner: Lower Lows in the Cat-Like Real Estate Market
Where’s the Bastille…? The Dow got a boost Thursday – up 143 points. Gold remained where it was – about $1,617. Dear Readers know what we think. The Great Correction has a lot of work to do – there are so many things that need correction. And it will take time to do it. Meanwhile, your goal as an investor is to lose less money than everyone else. He who loses least wins! Stocks should go down. Real estate should go down. Even gold should go down…as the dollar goes up! Cash will be king… …until the revolution. What kind of revolution? When? Ah…dear reader…you’re asking a lot from a free service! But what the heck… We’re happy to tell you what we think. We just hope it’s worth at least what you paid for it. Here’s the way we see it. Cash is king in a de-leveraging, dis-inflationary, depressing slump. The king should reign for a long time…because it will take a long time to squeeze the excess debt out of the US economy. But as you know, there’s a lot more going on. While the private sector reduces its debt the public sector adds debt. And the people who run the public sector are activists…determined to de-throne the king. They are plotting treacherous acts of insurrection… They are looking for the Bastille!
Here’s Ben Bernanke, stirring up the mob. Bloomberg reports:
Mr. Bernanke is preparing the crowd. He wants to take action to topple his royal highness, king dollar. He wants to bring cash down… And he figures that the way to do it is to drop him out of a helicopter. When people see so much cash fluttering in the air they’ll want to get it…and get rid of it…as soon as possible. That will get the economy rolling again and convince people that he, Ben Bernanke, actually knows what he’s talking about…and that he, Ben Shalom Bernanke, should be in charge. He should be the real monarch… But Mr. Bernanke’s hour has not come round yet. He is faced with opposition in Congress…and in his own central bank. He will have to wait before it is time to slouch to Bethlehem…he’ll have to wait for things to get worse…then, he’ll be able to start up the helicopters. What might make things worse? When? Keep reading… Here’s more bad news for the world economy. Again, Bloomberg is on the case:
If Americans don’t buy, Chinese don’t make. That leaves both of them feeling a little poorer. And here’s what happens when people get poor.
A thought keeps coming to mind. This correction is bigger, meaner and longer lasting than even we imagined. It’s not just taking us through a normal recession cycle…and not even through a normal credit contraction. Actually, we have so little experience with credit contractions that we don’t know what normal is. Like the US in the ’30s? Like Japan in the ’90s? At least we know how, in theory, credit contractions work. People cut back spending until they have rebuilt their balance sheets. That’s why they are also called “balance sheet recessions.” We can also make some estimates about how long they will last, based on how long it should take to pay down debt. When the correction began we calculated that it would last 7 to 10 years. That’s how long it would take to pay down debt to ’80s levels, assuming savings rates went back to where they had been at the beginning of the ’80s. Now, it looks like it will take longer. Maybe forever. At least, it will seem like forever. This is partly because the feds interfered. They panicked when it looked like the process of de-leveraging was out of control. People were going broke – even people who made large campaign contributions! Even people who were members of that privileged fraternity – bankers! So, they came in…and locked up the economy in its depressed state, keeping zombie institutions alive indefinitely. But that’s not all. It will also take longer because it is a more serious correction. It has a lot of work to do. What exactly? Well, we don’t know exactly. But many of the governments of the developed countries are not likely to survive. ‘Wow, Bill, have you lost your mind?’ We don’t take anything for granted. And we know that we are sometimes right and sometimes wrong. And always in doubt. Still, the social welfare governments of the modern world are not equipped to deal with this challenge. They were designed for growing economies, not stagnant ones. They were all created in a period of growth – made possible by the widespread introduction of cheap fossil fuels. That period is over. Temporarily or permanently. And the dinosaurs of the growth era are unable to adapt to the colder climate of the new age of austerity. Here in France, for example, they’ve already taxed the rich about as much as the rich can stand. And they’ve robbed future generations as much as they could get away with. What else can they do? In the US, they can probably tax the rich harder…but it will yield peanuts, perhaps even reducing the feds’ take. America’s providential state is less generous and less ambitious socially than the French model. On the other hand, the US is far more ambitious militarily. For every layabout chiseler the French supports, the US supports two soldiers and one Pentagon contractor. The cost is staggering …and probably even more irreducible than Europe’s social costs… Neither the Europeans’ social welfare states…nor the Americans’ welfare/warfare state…are likely to survive in their present forms. Reprinted with permission from the Daily Reckoning. October 4, 2011 Bill Bonner is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and The New Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007). His latest book is Dice Have No Memory. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Copyright © 2011 Daily Reckoning
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