If the Economy is Not Recovering It Isn’t Getting Enough Stimulus


Goldman gets a hidden bailout…Wall Street uses bailout money for bonuses…Cash for Clunkers…nationalizing GM…quantitative easing…Geithner lies to the Chinese…

Crackpot ideas! Corruption! What next?

But the most breathtaking scene is the one no one seems to notice…

Perhaps it is because we have our head in the clouds…so far above the surface of everyday life that we can look down and see what is happening…

..or perhaps because you have to be a connoisseur of absurdity to appreciate it…

..strange…bizarre…almost surreal…even when you see it, you don’t quite believe it…

First, the voters ruined themselves…now it’s the government’s turn!

The US federal government is digging its own grave…bankrupting itself with its eyes wide shut. And it’s not alone…

Look back a little more than 100 years ago, and you’ll see that something similar happened. Europe went to war. No one knew why. No one knew what he stood to gain. But whether he was a kraut, a frog or a Tommy…he kept at it for four years – until every major government of Europe was broke. Most of them collapsed completely. All of them were broke. Germany and Russia, with the added burdens of war reparations on the one hand, and Bolshevism and civil war on the other, forgot their manners. Both were soon butchering their own people.

In the Great War the generals led the way to calamity. Now it is economists…

Some observers think the economy is recovering already. Others think it is not. If it is not recovering, it is because it didn’t get enough stimulus, they say. If it is recovering, it’s because the stimulus has worked.

“Fewer layoffs expected as recession winds down,” says a headline this morning from one of the wire services.

The Dow fell 25 points yesterday…but it’s still in bear market rally mode. With a little luck, it could go to 10,500.

(Of course, it can do whatever it wants…we’re just guessing, based on the experience of other major crash/depression episodes in history.)

Oil trades at just under $72 this morning. Gold is at $960.

It is “business as usual at Goldman,” says a news report. Which is to say, big bonuses for the bankers. The top eight US banks got more than $170 in bailout money last year. They paid about 20% out in bonuses.

But now the press and the politicians are on their case. It looks like they might have to ease up on the bonuses…at least until the heat is off.

The news is mixed. German factory orders are up…but the Bank of England says the recession is worse than expected; it says it will continue buying bonds.

Americans are raising chickens in their backyards again…even in places like Brooklyn. But the latest headlines tell us that requests for unemployment benefits are running below expectations.

The housing market is supposed to be stabilizing…but new waves of defaults, resets and foreclosures are coming. Half America’s mortgages will be underwater by 2011, says a Reuters report. And Deutschebank warned that construction loans were starting to go bad too.

But the big story? Stimulus!

Here is the International Herald Tribune on Monday:

“More Stimulus is Needed to Spark a Strong Recovery,” is the headline. According to the IHT, stimulus is working. And it will work even better if there were more of it.

Once underway, the WWI generals used the same sort of logic. If they were winning, it was because they put so many resources into the campaign. If things were going against them, they called for more men…more guns…more ammunition.

Of course, once a war has begun, it is hard not to want to win it. One hundred years later, it seems obvious the combatants should have called the whole thing off. They could have spared themselves a lot of misery.

But that’s not the way history works. She may be absurd, but she rarely does things by half measures. Once called to action, soldiers fought to win…even at the cost of their own lives.

And now the world’s central banks, Treasuries, and legislatures are at war. With economic strategists egging them on, they have declared war on all that they find unholy about capitalism – deflation, bear markets, and the down swing of the business cycle. John Maynard Keynes, that much-revered strategist from the Depression Era, tells them this is a fight they can win. And they believe it!

Of course, these are the same people who saw nothing to worry about in 2006…the same people who have no idea what is going on – and have the track record to prove it!

Can you really fix a debt-saturated economy by pouring on more debt? We know the answer, don’t we? When you borrow money you take something away from the future and bring it into the present. That is not a bad thing…if you are doing it to increase your future output. In that case, you’ll be able to pay back the loan with your extra earnings. But if you borrow from the future only to consume, the future waits for you…like Shylock waiting for his pound of flesh…

The future caught up with American consumers in 2007. But the feds learned nothing…and soon it will be a ton of flesh the future will want.

Bill Bonner
for The Daily Reckoning Australia

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 The Daily Reckoning.
Bill Bonner

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  1. Novista

    Thankyou for this site – it always moves me as a father of a small child when I see what parents, mainly mothers, went through in the 1930’s and the anguish they went through to feed their children and what they faced every day – the utter hopelessness on their faces and I assume that the current environment is the same – the economy cannot get into a recession as the government knows what it is doing – for me, I want to be prepared for the worst and pray for hope and that we can survive somehow the next decades

    nonetheless the future looks bleak given resource usage and another billion new souls in the next several decades with agriculture needing to expand 70% from todays level to feed the great unwashed – that is a horrible figure of exponential growth required to sustain food + energy + shelter = genetic modified food and nuclear energy = the world is a tinderbox – and listening to the squabbling of the crusty old men in power makes me feel anguish for what is the human race as it appears but an experiment going wrong in evolutionary terms

  2. “In the Great War the generals led the way to calamity. Now it is economists…”

    No, it’s still the generals. If you want to work out where the money has gone, look no further than the absurd, incomprehensible amount spent on defence. The ultimate waste of money, which is to say economic effort. Here in Oz, the Department of Defence is the biggest single employer in the country. All those people who *could* be doing something useful and productive, but aren’t.

    Shiny jets and people marching up and down the square with guns. More money than pretty much any other form of activity.

    It’s always been the generals.

    Paul Murray
    August 16, 2009
  3. Paul Murray: I have to say as an ex-defence force person that I think you are being more than a little unkind to suggest that people in the forces are not doing something useful. It is okay to question the defence budget, but let’s not start tossing insults at those who serve.

  4. Actually, I think was the politicians, who were also the bankers. The war wasn’t paid for in gold but in the value of the dollar, pound etc.

  5. This depression is different. Why? – we have not no shortage of physical goods this time. Plenty of grains, milk, butter, foodstuff, clothing, housing and factories. There is no world-wide drought, no serious plague, no global flooding. Even with massive population growth, if the grains are not turned to meat (at weight conversion factors of 8 to 1) – enough grain is produced to feed every human being (and then some).

    Just serious economic mis-management by capitalists and their cronies.

    Unfortunately, crony capitalism is well and alive everywhere you look.
    Pure Capitalism that Bill Bonner puts on a pedestal and worships exists only in an ideal world. Just like pure socialism – it is a great concept that cannot exist in real world. Self-interest wins everytime!

    Wake up Bill. You call for the public servants to be above the human frailties. In practice there is a self-selection process, not different from those who join the church these days.

  6. Vic: I think you are right that the free-market will never truly exist, but I do not agree with your judgement of Bill’s commentary.

    This is Bill’s way of communicating his ideas and the way he sees the economy. I do believe that some days are ‘slow news’ days and a bit of nonsense gets written, but if you look beyond the idealism to see what he is actually trying to say you may realise there is value in it.

    As for your first comment about physical goods: Does it occur to you that whilst a country may have plenty of food produced, the same population can still go hungry? There can be a few reasons for this:
    – Exports. Farmers earning more money exporting. Food prices go up.
    – Energy costs. It takes energy to produce, transport and process food. If energy costs rise, so do food prices.
    – Hoarding. Increased internal demand for food makes farmers demand higher prices. A food bubble? Unlikely, but you never know. Companies like the AWB can make things happen, but cattle are typically sold by individual farms. If we ever get a large company(s) managing all of our produce…lookout (as for Coles, Woolworths, etc, i’m not sure about that)
    – Malinvestment. “It seems you can make more in the sharemarket or developing property than you can by farming”. Any bubbles or legislation or economic forces that encourage speculation will lead to malinvestment. Like in Germany (I heard) around wartime, where people would make tins and canisters because they sold for more than food – even though food was scarce and people were starving.
    – Credit issues. Tighter credit markets are bad for farming. Can’t get credit to buy seeds? Can’t get credit to buy fertiliser? Can’t get credit to run the farm? The bank sees you as a huge liability?

    I believe that (quite typically) it isn’t until a population has started to get into a crisis that it starts taking action. So, let’s neglect our farms now, and then panic and go farm crazy in the future.
    An example that springs to mind is water shortages leading to Melbourne’s de-salination plant.


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