And we're not the only ones. The US government is shut down too. No matter. They weren't doing anything but making things worse.

But wait...what's this?

The Washington Post: "Blizzard or not, top Treasury staff is snowed in - with work."

Uh oh. The folks who run the economy for us are still on the job.

"Geithner, aides skip day off to tackle economic clouds."

We have to confess; we've never seen a US Treasury official tackle a cloud. We can't quite imagine it. But it's in the paper, so it must be true.

Of course, there are plenty of economic clouds around. Heck there are plenty of real clouds, too, dumping snow on the Washington area. Politicians and bureaucrats can't really do anything about either type of cloud. But it must be a comfort to the woodenheads to think they are on the job. We'd rather they took the day off - and tomorrow too. And the next day!

What a godsend this snow is! Think of all the people it puts to work. Kids shovel out driveways and earn a little spending money. Snow-blower sales must be going through the roof. Four-wheel-drive vehicles are sliding out of lots and showrooms...work crews keep busy night and day - with huge overtime earnings, no doubt.

And think of all the missed work...and school...that will have to be made up.

You're probably thinking...now, wait a minute. There's something wrong with this picture. How could something as destructive and expensive as a blizzard be good for the economy?

Well, you're just not thinking like an economist. You have to learn to stand on your head. Then, things are turned upside down.

Of course, a storm is not really good at all. But simpleton economists believe that anything that puts people to work is a good thing for the economy - even a world war.

What really happens in a storm...a blizzard...a flood...or a war is that real wealth is lost. Things break down or are destroyed or used up. And then a lot of resources must be put to work to make repairs. Putting these resources to work in a concerted way makes it look like progress...but you're really only getting back to where you were in the first place.

Besides, the resources must be taken away from other things. The demand for snow-blowers displaces the demand for motorcycles or jet-skis. Workers who move snow might otherwise be making pizzas or delivering newspapers. And the fuel that goes into the salt trucks and loaders...that too, would have been used for something else - something people wanted to do, not something they had to do.

The early French economist, Frederic Bastiat, figured this out a long time ago. He called it the 'broken window fallacy.' Even then, some lazy economists thought that breaking a window actually boosted economic activity. Of course, it was nonsense...

If you could really improve an economy by breaking windows...or having a tornado pass through down...why not just blow up a whole city?

And this...a message from our Dear Reader in the South Pacific:

"Ok, you posed an interesting question... Why would someone - me, for instance - living on a private island in the middle of the South Pacific concern myself with the insane world of macroeconomics? Good question. I think I have a good answer.

"First, islands are very expensive. Somewhat like a boat, buying them is just the beginning. Second, if you are a highly motivated individual brought up in the Western world, money is like meat to a tiger. It's what you like, it's what you are used to, it's what you understand. I don't want my rooms to be rat-infested, insect-ridden places like they would be without money. I want something fantastic; the island is fantastic. I want the rooms to match.

"As you know, one of the ways I've made money is by buying gold from the people that pan it out of rivers. The gold business is why I started reading the DR in the first place. I was reading lots and lots of interesting information about money and gold, and then I read The Daily Reckoning. That changed me. It did two things for me. One, it made me laugh; two it made me the smartest person in the room. Yeah, it's true, I was hanging out in some places where that wasn't all that difficult, still, even the local bankers still talk about me calling the financial crisis before it happened. Bill, you of course tipped me off, but being human, I took full credit.

"Now I'm bone tired as I write this. I did something today that Indiana Jones would have been impressed by. I just took my corpulent, over indulged, out of shape, one glass of wine too many, sorry ass up a mountain to visit a group of men, women and children living in the most difficult circumstances that you could possibly imagine. These people were...absolutely real! You would have loved the eyes of the women with their corn cob pipes. I would rather spend ten minutes with any one of them than have an opulent lunch with Ben Bernanke. I guess Ben and Tim and Henry or any one of those fat cats on Wall Street would faint at the very idea of living the way I just saw these people living. They hike up this trail that would kill a camel and they live with almost nothing. When they want to come to town they start at 2 in the morning and walk for 8 hours on a nearly impossible path knee deep in mud. They work hard getting the little flecks of gold out of the river. They have only kitchen pans, and an old spring from a truck is their only tool for moving the big rocks. They may deserve it but nobody gives them a bonus.

"I took a local doctor with me, along with my great crew, and we all struggled to make it up the mountain to their village, this after the worst 2-hour drive on the planet; it could not be classified as a road, more like a muddy river we attempted to drive up.

"I am not a do-gooder. I don't like do-gooders and probably never will, but I have to admit that today it felt good to alleviate a little human suffering. We treated the fungal infections that are just rife in the village. People whose skin is covered with a itchy scale akin to ring worm that just makes their lives miserable. You could not look at little children whose entire bodies were a mass of sores and not feel for them! For the equivalent of 20 US dollars each, we could dramatically improve their lives.

"So in a long-winded way, I'm trying to say that money matters, that macroeconomics matter, no matter where you are on this planet. We are all connected in one way or another and when one group thinks that it's got a special place in the world, a place where they don't even want to know how most people on the planet live, well, I'm not so sure that makes it special or just blind. I think these blind people have weaseled their way into positions of power, where they make decisions that affect a lot of people. People who don't know anything about and apparently don't want to know.

"In one of your pieces you wrote something I have never forgotten. You said you were not really an economist, but more of a philosopher who uses economy as a platform. I loved that idea, Bill. Any of us that are fortunate enough to have time not spent struggling to stay alive, have an obligation to think about the whole, not just our own little world where we think nothing of pushing buttons to get what we want.

"If you stand back and look at the macro of life, (sweat dripping of your chin clears things up!) we are all part of the whole, and when we lose that perspective, we lose more than money. Somehow I think that is really what this financial crisis is about. Loss of perspective. Just look at who they've put in charge of important things!

"I will sign off with a saying I heard as a child... This is for good old Ben: 'Those that can, do. Those that can't, teach.'"

-Pamela

Regards,

Bill Bonner
for The Daily Reckoning Australia

• Salt vs. Snowflakes
• Here Comes More Snow!
• Modern Economic Theory
• Global Warming Temperatures Falling for the Last 10 Years
• Depending on the Landlord

It's a little surprising that someone who lives in such a paradise setting would trouble herself worrying reading The Daily Reckoning and worrying about macroeconomics. But the world of money is fascinating. And probably a lot more entertaining if you're not in the middle of it.

Yesterday, investors must have felt like they'd rather be somewhere else. The Dow registered a loss of 268 points. Gold took a $49 beating.

We won't know for sure until tomorrow. If tomorrow is another bad day - as it probably will be - then it will be clear that the last stage of the bear market has arrived. This should be the final drop...when stocks should go down to their ultimate bear market low.

Where will that be? We don't know. Maybe Dow 5,000. Maybe lower. One way or another every major bull market needs a major bear market. The two go together like yin and yang, Abbott and Costello, or gin and tonic. Take one out of the picture and the other one no longer makes any sense.

We've had our bull market. It took the Dow from under 1,000 to over 14,000 in the space of 26 years. We've had a bubble too. The party was a lot of fun for everyone.

Now, it's time to clean up. It's time for the bust in the economy...and the bear market in stocks. That's just the way it works. Sorry.

If this bear market is going to correct the entire bull market from 1982 onward, it has to take prices back to the levels they were when it began. Back then, you could buy the Dow (from memory) for about 5 times earnings. Now, (we're not doing any research here...just broadly remembering the figures...) it's at about 20 times earnings. If those numbers are correct, you'd expect the final low to come in about a quarter of where it is now...or about 2,500.

Another way to look at it is to ask ourselves what the Dow of '82 would be today, adjusted for consumer price inflation. We don't know the answer to that either...but we'll guess that it would be about 4 times what it was then - or about 4,000.

So, now we have a range... We know roughly where this market could be headed - if it is the yang we're expecting. And if that's where it is going, a South Pacific island paradise would be a good place from which to watch it get there.

Bill Bonner
for The Daily Reckoning Australia

• Your Second Chance to Escape the Bear Market
• Bear Market Bounce a Sure Thing
• Deception of the Bull and the Bear Markets
• All the World’s Stock Exchanges are Now Officially in Bear Markets
• It Wouldn’t be a Real Bear Market Rally if it Didn’t Test Your Confidence in Your Position

The artist in me is attracted to the cover of the magazine this week, and I loved the clever way that the artist had the book melting into something runny-yet-yummy that looked like puddles of chocolate and vanilla ice creams, which wordlessly explains why Modern Economic Theory was so popular in the first place.

My refined artistic instinct, however, would have had the book rotting at the bottom and melting into millions of disgusting cockroaches all swarming out, which is a lot more repulsive and thus artistically descriptive of the results of the monetary ministrations of the loathsome Federal Reserve, lo these last several decades, which created a constant deluge of money which, single-handedly, made all the weird Congressional insanities possible, all the economy-distorting government spending possible, all the crushing debts public and private possible, and our "We're freaking doomed!" future so pathetically predictable and indeed inevitable that, just as predictably and inevitably, gets me started on how this "predictable and inevitable" thing is the Exact Freaking Reason (EFR) why it is imperative that you buy gold, silver and oil! It's all so easy!

The Economist magazine, also predictably and inevitably, does not comment on this Gem Of Mogambo Economic Wisdom (GOMEW), which is to buy gold, silver and oil on the advice of the last 4,500 continuous years of the world's economic history, particularly as it pertains to fiat currencies and the trustworthiness of governments.

Instead, they admit that "There are three main critiques; that macro and financial economists helped cause the crisis, that they failed to spot it, and that they have no idea how to fix it," which are all only true in the broadest sense, although because The Economist magazine is filled with these same kinds of neo-Keynesian of guys, they are completely unaware that there are lots and lots and lots of economics people out here who did NOT cause the crisis and, in fact, the Austrian school of economics (see: Mises.org to learn the only true economic theory!) has been insistent all along that the whole Federal Reserve modus operandi of creating excess money and credit was (to paraphrase into Mogambo-ese, which is to heap scathing disdain and utter contempt upon a wide range of people and things), a big, stinking load of bankrupting inflationary stupidity.

And since you mentioned it, these same Austrian school of economics guys had it spotted with laser-like precision the Whole Freaking Time (WFT), too!

And this does not even get into the unbelievable $2 trillion Congressional budgeted deficit-spending thing, which is enough to make you poop in your pants and exclaim "Yikes!" which is not as comical in real life as it seems when you simply read it on the page like this.

So you can see how I am predictably nervous and trigger-happy, and when The Economist article said that "macroeconomists also had a blind spot: their standard models assumed that capital markets work perfectly," you can actually hear me in the background as I immediately jumped to my feet and exclaimed, "No! No, you blockheads! Their blind spot WAS their stupid Keynesian models! The whole thing was one stupidity piled on top of another one! Hahaha!"

You have to pay particular attention, but if you look really close at the video surveillance tapes, that's me in the lower left corner in the background, demonically waving a pair of silk women's bikini underwear (which I did to attract attention, which it did, but not, unfortunately, in a "good way") and if you turn the volume up, you can hear me yelling, "How in the hell can you manage monetary policy on such pillars as, for example, 'the consumption function,' which is just the notion that you get some money, you spend some money, you have some money left, but each expressed, in percentages of total income, to three decimal-place precision? And which are then used as inputs to myriad subsequent equations of equal worthlessness, compounding and compounding the inherent errors with each iteration? Hahahaha! Morons! You're all morons to believe any of this silly crap!"

Suddenly, the security tape goes blank, and thus my summation was lost to history, although I fortunately remember what I said. I continued, in my usual sarcastic way, "In fact, people are morons if they expect that this time, after all the times in history when it has been tried and failed, the government will - for the first time in history! - finally be able to buy its way out of bankruptcy by printing a lot of fiat money and, through some Absolute Freaking Miracle (AFM), a ruinous hyperinflation will miraculously not destroy the economy, the people will surprisingly not riot in the streets, and you won't hear The Fabulous Mogambo (TFM) predictably laughing and saying, 'I told you to buy gold, silver and oil because - Whee! - this investing stuff is easy when the government is acting so irresponsibly, ya morons!' and instead everything will be just fine after a gigantic deus ex machina occurs where some omnipotent supernatural being presses some kind of Cosmic Reset Button (CRB) to set everything aright, where everybody's losses are made up, everybody gets rich and everybody finds true love and lives happily ever after. Hahahaha!"

Or, for the less optimistic, buy gold, silver and oil, which WILL come true, unlike that "true love" thing! Hahaha!

Until next time,

The Mogambo Guru
for The Daily Reckoning Australia

• SOS: Suffocating On Spending
• An Edifice of Pure Economic Crapola
• Gold and Silver!
• Silver and Gold Will Make You More Attractive
• Roasting G-20 Weenies on a Golden Spit

"You weren't here today," began the cab driver. "You missed the excitement. You know, the G20 meeting. They held it here in London...

"Some lads got out of control. They smashed a window over at the Royal Bank of Scotland, and then broke up the computers and so forth...

"Nothing very important, but the media makes a big thing of it. They kept talking about that G20 meeting - as if they were going to change the whole world - New World Order and all that...but what could they change? These hotshots at the banks took some bad bets. Now they've got to pay for them. What's all the fuss about?"

Clearly, our cab driver should go back to school. He could study macroeconomics and learn about counter-cyclical fiscal stimulus...and the multiplier effect...and the need to restore liquidity to the financial sector. Then, he could be spouting the same claptrap as other commentators. He could get on board with the plans to save capitalism from...well, from capitalism! It's all very well for the capitalists to make money, he will discover, but when they begin to lose it, well government has to step in and bail them out. The "creative" part of capitalism is fine...but spare us the destruction, okay.

Yesterday, the heads of state of the world's 20 leading countries decided to put more muscle into their efforts to stop capitalism's downswing. Notably, they decided to treble the budget of the IMF. In all, today's International Herald Tribune tells us it's a "One Trillion Dollar Deal."

Gordon Brown pronounced it a "New World Order," which sounds a lot like what George Bush I was aiming for 15 years ago. One world government. One multi-national police force. Harmonized tax collection. (No more tax havens...nowhere to run...nowhere to hide...) Keep the masses happy with bread and circuses...and "wars" against imaginary and unnecessary enemies. (The War on Terror and now - the War on Depression.)

Hey, maybe we'll all have to speak Esperanto, too...

But at least now the IMF will be about to bailout more bankrupt governments before it goes broke itself.

Most of the money is coming from a country that doesn't have any: the U.S.A.

Look up. What do you see? Why, it's our Dollar Crash Flag. The dollar's days are numbered. What's the number? We don't know. But whatever it was a week ago, it is a smaller number now.

Yesterday, the dollar gave up a little ground. The euro rose to $1.24. Oil went up to $52. Gold, however, fell hard - down to $904. Gold stocks, on the other hand, did rather well.

Hugo Chavez was in the Mideast this week at a meeting of oil producers. He called for a new petro-currency...which, we suppose, is a currency backed by oil. The Associated Press:

"Venezuelan President Hugo Chavez sought Arab support Tuesday for a proposed oil-backed currency to challenge the U.S. dollar in his latest swipe at Washington's dominance in global financial affairs."

He probably won't get very far with that. But he's not the only one looking for a solution to a crisis that hasn't happened yet.

The dollar's been king of the monetary mountain for a long time. But it had better be careful...watch it's back ...give a little of the food to a dog before eating it itself. Rivals are plotting against it. Much of the world wants to dethrone "King Dollar," says the French financial journal, La Tribune. China has already called for a new reserve currency based on IMF Special Drawing Rights. What's more, it's worked out bilateral agreements with many of its neighbors to swap goods, rather than use the dollar as a common unit of exchange. This week, it went further afield, making a deal with Argentina. This is the first deal of its kind in the Latin American world. But it's probably not the last. People see trouble coming with the greenback. They don't want it to hurt their sales of raw materials to China.

The Russians, too, have called for a new reserve currency. They, like the Arabs and Chavez, are sellers of raw materials. They don't want to get stuck with dollars that are losing their value.

That's the real New World Order...the United States will find it harder to stay in the driver's seat of this bus...and the U.S. currency will no longer give Americans an automatic ticket to the first class section...

More news from Ian in rainy Baltimore:

"First Friday of the month, you know what this means...time for the U.S. employment scene to hit a new low," writes Ian in today's issue of The 5 Min. Forecast.

"663,000 Americans lost their jobs in March, the Labor Department claims today. That puts the official unemployment rate up to 8.5%, the highest its been since 1983. March's loss marks the 15th month in a row of net job losses. Since the recession began, the government estimates 5 million Americans have lost their jobs."

"Today's number stands in line with the jobless claims details earlier this week - a record 5.7 million people are currently filing for unemployment benefits.

"But from a trading perspective, as dark as this might sound, today's jobs number was a non-event," continues Ian. "March's losses were just a bit higher than the Street anticipated, and the small details were mostly in line with expectations.

"The only real surprise came in the form of a big January revision. The government added 86,000 lost jobs during the month, to a January tally of 741,000. That's actually the biggest monthly drop in 59 years. Such a number would have sent stocks to the woodshed back in early February, but since the revision is now so backward looking, there isn't much traders can do. Clever trick, eh?"

Each weekday, Ian and Addison bring readers the The 5 Min Forecast, an executive series e-letter that provides a quick and dirty analysis of daily economic and financial developments - in five minutes or less.

And Bill with more thoughts:

The rest of the world is enjoying tweaking the nose of the United States of America. The U.S. dollar has dominated world markets for more than half a century. Even before that, it was a favorite for many of the world's peoples. England ceased having the world's largest economy in the last decade of the 19th century. It was surpassed by the United States...and then by Germany. And since then, it has been surpassed by Japan, China and France too. Even California has a bigger economy than Britain.

Both Britain and its pound were victims of WWI, with the United States and the dollar taking the lead position.

But what goes around, comes around. Now it is the dollar's turn. Maybe not this year. Maybe not the next. But it will have to get knocked off the top of the mountain sometime.

One of our French dear readers wrote to say he thought it wouldn't happen for another 10 years. Maybe he's right. As we predicted more than five years ago, the United States is sinking into a Japan-style slump. Unless it begins printing money - hell-for-leather - it is doomed to follow Japan. This from MarketWatch:

"The great recession of 2008 and 2009 is likely to be not only the longest downturn since World War II, but also the most geographically widespread recession since at least the 1970s.

"For the first time on record, all 50 states were contracting at the same time, according to the state coincident indicators for February released by the Federal Reserve Bank of Philadelphia on Tuesday. The state-by-state indicators have been tracked by economists at the bank since 1979."

Of course, if it prints money too aggressively, or if people THINK it will print too aggressively, it could follow Zimbabwe. Either way, we want off this train...

As GM goes, so goes the nation. Obama assured the nation that America would be the leader in car manufacturing. Alas, it is probably not to be. What makes Germany and Japan so competitive today is the fact that their industries were destroyed in WWII. They were forced to rebuild...amid tough competition. The United States, on the other hand, never had the benefit of aerial bombardment. And its auto industry has had such huge advantages - it was practically doomed from the beginning. Detroit has ready supplies of steel...rubber...plastic...labor - everything you need to make a modern automobile. Japan and Germany had to import almost everything. U.S. automakers also had a much bigger domestic market than either of its competitors...protected by two grand oceans. And it had vastly more open road...and gasoline that sold for only a fraction of the price in Japan or Germany. U.S. automakers would have to be numbskulls to blow this opportunity.

Of course, that is exactly what they did.

Not that it is any of our business. How they run the auto business is entirely up to them, as far as we're concerned. We just note, and not for the first time, that you've got to get in the habit of compensating for your strengths. Because it is your advantages that will kill you, not your weaknesses.

Why are Americans broke? Because they had the world's strongest economy and the world's most trusted money. As a result, everybody wanted to lend them money.

Why are the Chinese sitting on the biggest pile of money on earth? Because they had to live under one of the worst governments in history...because they were starving only a few years ago...and because nobody would lend them any money.

Now, what Americans have is the world's most powerful military machine...immensely more powerful than the closest rival. In fact, the word "rival" has no sense to it. In order to match the United States, you'd have to put together all the rest of the world's military forces. Even then, they'd be no match for the United States...neither in technology nor in organization.

With that, we invite you to imagine how the world's most successful military will destroy itself...just as the world's most successful economy just did. Cursed with far too much money...and far too much luck, (its major enemy just gave up!) it's just a matter of time before the Pentagon finds its own road to Hell. Maybe it already has!

Are we rambling? Maybe...but we were stuck on the Eurostar on our way back to London when we wrote this part. What else is there to do but ramble?

Out in the street, the demonstrators - including some who looked like professionals - got to tussle with police. The bankers generally laid low, but a few provoked the demonstrators. In the window of the Royal Bank of Scotland, for example, someone had pasted the words:

"WE LOVE MONEY."

Others held 10-pound notes out the window...taunting the demonstrators.

All in good fund, as near as we can tell.

Bill Bonner
for The Daily Reckoning Australia

• The New Chinese Era
• Difference Between the Dollar and the Yen
• Japan’s Slow-Motion Demographic Catastrophe
• Cheapest Place in the World to Live is the US
• US Dollar Declining as China’s Currency Rises

Contrarianism has never meant a simple reversal of the immediate situation. Contrarians do not say to themselves, or to their fellow contrarians, “GM, Ford and Chrysler are in terrible trouble, let us pile into their shares.” In a week when almost all the news is bad, one has to be a cautious if one is to avoid further nasty surprises. Contrarianism is a matter of hedging one’s expectations, so as to avoid surprises.

The first contrarian point can be made about the stock market. There are a large number of companies which meet two criteria. They can be expected to survive the crisis and their shares are much cheaper than they were. I am not a stock picker, but a glance at the stocks listed on the New York Stock Exchange shows that there is a good choice of shares which offer a price earnings ratio below 10 and a share price below half the high level for 2008. Which of these shares are in good shape I do not know, but collectively they offer good value. They may, or may not, be near the bottom, but in three years time I feel that they will, collectively, seem to have been bargains. In emerging market stocks there are some even more striking bargains, with price earnings at 5 or even below. Of course, one has to avoid shares in companies which are in the eye of the storm – such as companies which make automobile components or sell real estate.

The strongest macroeconomic reassurance comes from the “automatic stabilisers”. In the early 1930s, most countries had private spending which accounted for between 80 and 90 per cent of national income. When spending was cut by private individuals to protect their own finances, there was little public spending to maintain the balance. That created a competition in mutual impoverishment, well recorded in Maynard Keynes’s General Theory (1936).

Governments in the early 1930s tended to cut their own spending, in a premature effort to balance their budgets. When private individuals cut back nowadays, Governments not only maintain their expenditure, but actually increase it as a part of a contracyclical policy. At some point in the future, this may lead to Governments having to cut back to avoid inflation, but the initial consequence is that Government spending acts as a contracyclical, anti-deflationary, force. This does not mean that Governments have all been converted to Keynesianism; it is rather that the old doctrine of balancing budgets in order to maintain fixed rate convertibility has virtually disappeared. There is no longer international pressure on Governments to make deflationary periods worse by deflating themselves.

I would add a third contrarian argument. One should never underestimate the capacity of human beings to respond to challenges. Homo Sapiens has got through 50,000 years of evolution by surviving individual and collective challenges of a fearsome kind. As a species we may have made many mistakes, but we are survivors. Democracy, as the dominant political structure of the 21st Century, gives humanity a flexibility of organisation and requires Governments to be responsive to human needs.

There is a time lag between any economic crisis and its resolution. But no contrarian ought ever to despair. Human experience can be summed up in proverbs. One such proverb is that it is always darkest before the dawn. It is pretty dark right now.

William Rees-Mogg
for The Daily Reckoning Australia

• Is Gold Going Up Because People Fear Inflation?
• Oil Was Down and the Banks Were Up
• Note to Australia: Buy Resources, Not Banks
• One of the Biggest Humbugs in Capitalism is Private Equity
• Government Spending Spree