But there was no container large enough to hold the subprime losses. Each time one was set out, it quickly overflowed. The latest reports tell us that the bilge is now 500 times deeper than the Fed head forecast...and still rising. And this comes after $11.7 trillion has been committed in the US alone to pumping it out. Whether the plumbers are plain idiots or clever rogues, we can't say, but it should be obvious after two years of watching them, their pumps don't work.

It is not often that we are called upon to advise the world's government. In fact, we can't remember a single time. But we can't resist a lost cause. So, we offer the Daily Reckoning Plan to Save the World, or DRPtStW for short.

We begin with a brief rehearsal of what went wrong: The economy as it was before the spring of 2007 was too wonderful for words; whenever you tried to describe it, it sounded ridiculous. For example: "The richest get richer and richer by borrowing from the poorest."

"We think; they sweat," said one analyst, explaining how Americans could live beyond their means year after year. The West was just recycling the East's "savings glut," added Bernanke. Meanwhile, derivatives - based on mortgage debt from people who couldn't pay - "helped to make the banking and overall financial system more resilient," said the IMF in 2006.

Each sentence must have made the gods choke...groan...and then laugh. But beginning in 2007, came a correction. Suddenly, the big spenders saw their houses fall in value. Lenders watched their collateral collapse. The end was nigh. Two years later, $50 trillion has been lost, according to an estimate from the Asian Development Bank. After a slap in the face like that, you'd expect a little clarity. Instead, the public seems to have acquired a taste for bamboozle; now they can't get enough of it.

Just read the Financial Times. This week it has a windy series on the "Future of Capitalism," inviting readers to imagine how the decaying old creed might be reformed. Alas, for capitalism, it's out of the frying pan, into the toilet. Larry Summers, Obama's number one financial advisor, voiced the prevailing view: "This notion that the economy is self-stabilizing is usually right, but it is wrong a few times a century. And this is one of those times...there's a need for extraordinary public action at those times."

The gist of his program can be expressed in another wistful absurdity: The consumer economy died because of too much spending; now we will revive it by spending more. "Give me your cunning bankers, your hopeless CEOs, your huddled masses of chiselers, spendthrifts and boondogglers," says the Obama team, "and we'll give them other peoples' money!"

"There's no place that should be reducing its contribution to global demand right now," explained Summers. "The world needs more demand." But it was demand that the world recently had too much of. English speakers took on too much debt to create it...and built too many houses and too many shopping malls to satiate it. And despite the ready cash offered by Bush, Bernanke, and Paulson, demand has sunk, because the real problem is not an absence of spending, but a surfeit of debt. In America, for example, total debt went from 150% of GDP in the '80s to 350% in 2007. The financial markets panicked when it became clear that debtors didn't have the cash flow to pay off the debt...and that an entire world economy had been fizzed up to supply products to people who couldn't afford them. Investors have been discounting debt-soaked assets ever since.

The fix is obvious - reduce the level of debt. About $20 trillion worth of debt, in the United States alone, needs to disappear. Then, consumers can go back to doing what they do best - consuming. But how do you reduce the debt level? Former Treasury Secretary Andrew Mellon had the right idea in 1929: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate... It will purge the rottenness out of the system... Values will be adjusted, and enterprising people will pick up the wrecks from less competent people."

What's the cure for a depression? It's a depression. Let willing buyers and sellers mark debt down to what it is really worth. Mellon's plan was not followed by the Hoover or Roosevelt administrations. Instead, they introduced elaborate bailouts, stimulus programs, and boondoggles. That is why the depression is known as the Great Depression, rather than the So-so Depression. By the end of the 30s, the US economy was almost exactly the same size it had been at the beginning. Likewise, in Japan, holding off liquidation brought a "lost decade" in the '90s. Bush followed in Hoover's footsteps. And now, the Obama administration follows in Roosevelt's and Miyazawa's.

Here's our advice: forget it. Let the depression do its work. Let the bad times roll!

Bill Bonner
for The Daily Reckoning Australia

• George Bush Speech Sounded Like an Edition of the Daily Reckoning
• Bailout Bill Leaves Markets in Deep Freeze
• The Bush Administration Has Been the Most Liberal Administration Since Franklin Roosevelt
• AIG to Receive $85 Billion Loan from Fed
• The Chinese Stimulus Plan to Save the World

Yes, dear reader. Stocks are advancing to the rear...and economies are growing...smaller. How we love these oxymorons! If only we could age negatively...and eat all we wanted and gain minus pounds!

The commentators have it all wrong. Look on the bright side. The world economy is not in a period of negative growth. It's in a period of positive collapse! That's why the Great Depression was so great, after all. What's positive about this depression is that it is clearing away a generation's worth of mistakes, misallocations of resources and misplaced confidence.

Stocks are down more than 20% this year. The U.S. economy is retreating at more than 6% per year. Britain is walking backwards at a 2% pace. And Japan? Wow...when it comes to negative growth, the Japanese are experts. Their economy is growing negatively at more than 12% per year. If this keeps up, by the time the next bull market comes along, there won't be any Japanese economy left.

The Asian Development Bank says the losses so far have cost the world $50 trillion.

The Financial Times reports:

"The ADB's estimates take into account falling stock market valuations and losses in the value of bonds supported by mortgages and other assets, though not financial derivatives. About a fifth of the losses in dollar terms arise from the depreciation of many currencies against the dollar."

The last estimate of the total world's wealth we saw was $100 trillion. If these estimates are correct, the planet has lost about half its value. But who bids for planet earth?

Just about everything that existed - the real wealth of the world - still exists. What disappeared were the fantasy financial evaluations. A truck is a truck is a truck. It doesn't become less of a truck just because the world has entered a period of financial contraction. It is just as serviceable now as it was two years ago. And the poor guy who had a trucking company keeps on trucking...

But now he has a whole lot less trucking to do than he did before. The stores aren't moving as much merchandise...so no need to deliver so much. And so the value of his truck - in terms of how much revenue it can produce - has gone down. So too has the value of his trucking company. Maybe he should never have bought that truck in the first place...

The Dow is down near 6,500. Only 1,500 points to go. At least, that was our guess a few years ago. We figured that the Dow would have to go to 5,000 in order to get down to real bottom prices.

Will the bear market finally be over then? Nope. That's just where you can begin looking for a bottom. Remember, markets tend to overshoot.

So far, the Dow has wiped out 43 years of gains. Adjusted for inflation, it was at this level back when the Beach Boys and the Beatles were just starting out. Actually, we don't remember when the Beach Boys and the Beatles began...but it must have been in the md- '60s.

Back in '66, the Dow hit a high for the cycle. It had been going up since the bottom in 1949. After the peak in '66, it retreated...and then staged another attack on the summit two years later. But inflation was getting pumped up too...and in real terms, the '68 high failed to better the peak of '66.

From '66 to '82 it was down, down, down. Then, Business Week threw in the towel: "The Death of Equities" said the cover story. Then, it was up, up, up...until...well, you remember the rest.

We only bring this up to warn readers: these major cycles take time. So far, the Dow has only gotten down to the '66 TOP. Now, it has to get to the '82 BOTTOM...adjusted for inflation. Where would that be?

Well....as we recall, the Dow was barely at 1,000 when the bull market began. And if adjust that to consumer price inflation, we come to a 2,000 - 3,000.

Will it get there? Who knows?

The Dow gained 32 points on Friday...a slight bounce up at the end of a dismal week. Oil rose to $45. And gold, which seems to have finished its correction, ended the week at $942.

Bill Bonner
for The Daily Reckoning Australia

• All the World’s Stock Exchanges are Now Officially in Bear Markets
• Maybe the “Cartoon” House Period is Over
• What a Summer
• Krugman Warns That the Run-up in Stocks Can’t Be Justified By the Fundamentals
• Oil and Gold Prices Linked for Most of Recession Period