Why the US economic recovery is a scam
The depression is alive and well, thank you.
The Dow rose 91 points yesterday. Gold fell $6.
Officially, the crisis is over. Everyone says so. Central bankers and Treasury officials have been congratulating themselves. It鈥檚 been a year now since the end of the world didn鈥檛 happen. These fellows take credit for it.
Bernanke said yesterday that he鈥檒l keep the monetary spigots wide open for a while longer鈥ut that鈥檚 just because the recovery is fragile. He also talks of an 鈥榚xit鈥� from stimulus programs, now that the economy is getting back on its feet.
Claptrap! Balderdash! Flimflam!
The mainstream economics profession is guilty of dereliction of duty. They should be telling people that this 鈥榬ecovery鈥� is a scam. They should be warning investors that the markets could fall apart any day. They should be buying gold and selling US Treasuries鈥nd explaining to the politicians that you can鈥檛 buy your way out of a depression with phony dollars squandered on wasteful projects!
Instead, the dopes are patting each other on the back鈥raising themselves for saving the planet from destruction.
But what really has gone on? And what鈥檚 going on now?
Glad you asked.
First, there is a real economic phenomenon going on 鈥� the depression. It鈥檚 alive and well鈥nd doing just fine. Households are de-leveraging. Businesses are building up cash. People are losing their jobs. Savings rates are edging up.
Almost everything is happening as it should.
Depressions are times of falling prices. Markets are always discovering what things are worth. In a depression, they find that assets 鈥� stocks and real estate primarily 鈥� are not worth nearly as much as people thought.
That鈥檚 why we have our 鈥榗rash alert鈥� flag still flying. Prices are vulnerable to sharp, unannounced drops until they finally get down to real depression levels. Since that hasn鈥檛 quite happened yet鈥e figure it鈥檚 still to come.
On the employment front, this depression has put more than 6 million people out of work. And every month, more people join the unemployment ranks. So far, so good. The US economy didn鈥檛 need so many marble countertop installers and so many mortgage refinancers. (If only something could be done to get rid of lobbyists!)
But the worst thing about a depression is that it holds jobless people prisoner for so long. Many of them will become lifers鈥hey鈥檒l never work again.
In that regard, this depression is similar to Japan鈥檚 20-year depression, 1990-2010. After the bubble burst, the Japanese鈥ho were aging faster than any race ever had鈥igured they needed to get serious about saving money. So, they cut back on spending鈥nd saved. Domestic spending collapsed. Fortunately, the rest of the world 鈥� especially Americans 鈥� were still spending their fool heads off. And Japan is an export-led economy. Even so, with its own consumers dragging their feet, the Japanese economy didn鈥檛 go very far or very fast.
The Japanese put their vast savings, directly or indirectly, into Japanese government bonds鈥elping the government fund its massive stimulus programs. Of course, the stimulus programs were a waste of money. The economy never really recovered鈥nd now the government is expected to have gross debt equal to 200% of GDP next year, according to the IMF.
For reference, the US is expected to reach 100% of GDP next year. Britain is hard on America鈥檚 heels with debt at 94% of GDP.
And now Americans are entering retirement savings mode too. The biggest age cohort 鈥� the boomers 鈥� need to do some fast saving in order to finance their retirements. They鈥檙e cutting back鈥ot just temporarily鈥ut permanently. They will never, ever again spend money like this did during the big bubble years 2003-2007. That鈥檚 what makes for a durable depression鈥�
Another thing that makes for a depression is a lack of lending. Bank credit is still falling. Households cut back because they need to get out of debt鈥nd save money for retirement. Businesses cut back too. New projects typically don鈥檛 do well in a depression. Small businesses struggle鈥nd fail. Big businesses get bailouts and subsidies. Depressions are times to neither a borrower nor a lender be.
Debt is only increasing at the government level. But that鈥檚 another story for another day鈥�
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