The Depression Now Known as “The Great Correction”


“When you visit India…and I suppose it is true when you visit China or Brazil too…you don’t even notice at first…it’s not so much a thought…but more like a feeling…”

We were explaining to colleagues why it’s the end of the world as we have known it.

Back to that in a minute…

The Dow rose 102 points yesterday. If this keeps up we’re going to have to amend our view.

In our way of looking at things…we are still in a prolonged bounce following the big drop of ’08-’09. Stocks have yet to realize that the economy is in a depression. Yes, we know it doesn’t seem much like a depression. Even we have stopped using the term…

Now we’re calling it “The Great Correction”…in which we’re expecting a number of things to get sorted out – including the stock market boom from ’82-’07…the post-’71 dollar-backed monetary system…and the huge credit expansion that goes all the way back to 1946.

But that’s not all. It could be that this period will correct the whole, extraordinary surge in Anglo-Saxon power that began in the 17th century. English speakers have been on a roll since Sir Francis Drake defeated the combined armada of Spain and France in 1588. Soon after England began putting together her empire…and then, the industrial revolution turned Britain and America into economic powerhouses.

In addition to reducing asset prices and de-leveraging the economy, The Great Correction could be reducing the relative power and influence of the English speaking peoples. We don’t know…but that’s the way it looks now…

Returning to our conversation…

“Of course, things are a mess in Mumbai…I mean, the traffic is terrible…the heat is appalling…there are people who look like they haven’t eaten in a month…

“But you can’t help but notice that India is moving forward. It’s chaotic; it’s uncomfortable; it’s unpredictable…but it is going ahead. People are young. Buildings are new. There are new cars on the road…and new shops opening up.

We saw a couple of Tata Motors’ new Nano cars – cute little cars that sell for only $2,500. But there were dozens of car varieties we never see on American or European roads.

“You can’t help yourself…you begin looking into the future…and imagining what it will be like when they finish a bridge or complete a road…or demolish a slum…or find new ways to do things…new ways to get along with one another…and new ways to run the country…

“Then, when you come back to France or America, you’re suddenly back in the past. It’s a relief, because everything seems familiar and orderly. Like a museum. But it’s a let-down too…because you’re back to dealing with old problems…old people…and old institutions. While the emerging economies look ahead…the developed ones look back.”

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. The Great Correction might reduce the relative power of English-speaking people, a bit.

    But don’t count on India or China to show the world the way forward anytime soon. You may be infatuated with their young economies and green shoots of growth, but behind them – the culture that the West (generally) uprooted a long time ago: corruption, favoritism, blending of state and business, the cast system, low productivity of cheap labor.
    People are young – because they die young.

    Economists… focus on money too much.

    American businesses are still the most productive in the world, still the most innovative. And the Great Correction only makes them (the survivors, at least) even more efficient.

    What can China or India offer to counter that, apart from cheap labor?
    Where is the quality of products, engineers, managers, entrepreneurs, education, science? The extensive phase of their development will pass and then they will hit a brick wall of inefficiencies embedded in their societies.

    USA was the first to hit the GFC. It will be the first to emerge back.
    Lower the dollar a bit, and then how can a state enterprise in China, loaded with layers of bureaucracy and ideology compete with a lean mean private US company which survived the Depression?

  2. Theres an assumption that the US is more innovative than China.

    That is flawed. For the last two decades the majority of the US have been a on a credit binge, slowly but surely diminishing the US’s ability to innovate. Sure there is still the possibility of a new invention in the near future, but the question remains is whether it would offset the massive credit that still exists within the system.

    China on the other hand, invented paper and compasses; inventions at the time no one thought was possible. India I’m not so sure I haven’t looked into India. I’m convinced China will show the way this century it needs to overcome and get through the junk credit that still dwarfs the US.
    US has died. It won’t emerge back until the 2020s

  3. Karwal: “China on the other hand, invented paper and compasses…”

    …and gunpowder… . Don’t forget the really serious stuff…. . :)

    Biker Pete
    March 25, 2010
  4. SV you sound like a smart guy and I have heard the “keep the faith” lines from corporate America before, it rolls off the tongue so easily because it has worked generationally time and again. The problem however is that it didn’t actually work from the 70’s onward, it was all trickery with liabilities compounded with every new set of trickery pulled out in every subsequent cycle. America is too far under and has to deal with at least 3 past crises on top of the current one in terms of structural adjustment.

    And I challenge you to question non Americans that work for US corporation in a quiet moment about what they think of US corporates ability to innovate and regenerate. Most will tell you that Americans in these past decades have failed their way to the top in corporates and that innovators are squashed. Only lowest common denominator tunes the equal of the worst of the soviet style are heard. I reckon a seminal event that set the tone for this was the US car industry imploding in the 70’s. Project unachievable growth and then spend & reward in advance to match it and then back fill the vector by asset stripping, revenue accruals or taking on unsustainable future liabilities, or by using reporting fraud to extend and pretend and then jump ship to your next adventure.

    And now we have had variously the richest Americans bailed out (having hitched themselves onto their equivalent of our 4 pillars), main street being adjusted but with no access to funds to innovate and further with decent infrastructure access restricted to a services base rather than an industrial base even if they were to get funds, and now we get Obama playing the equaliser soaking the rich to offset the unfunded liabilities using progressive taxation and taxes on dividends. Main street and the rich in the US are about to start a game of idiot tennis when the richests tax bills and the unemployment and the cuts to muni govt play out.

    The biggest danger to the rest of the world is the breed of smarter Americans who should know better like Denninger who get so easily distracted by the blame game that they join in the chorus going after China or Iran or whatever demonised narrative the state dept comes up with next. They are the same constitutionalist / innovation believers who say “keep the faith” to the tune of the band that played as the Titanic sunk.

    And for DD and Bill, one thing on the rump of Europe and Japan and others that have compelled savings and then appropriated them inefficiently via state intervention into R&D and mercantilism. Well their system continues as it did before, they are threated by lack a sharp contraction of anglo demand but they have options. They were largely able to match the US or beat the US on innovation recently and they were always able to beat them on quality. It might not be optimum and their aging populations are against them but they would seem a safer haven than the US in any but a military sense after the funny money gets washed out.

  5. The ‘new’ economies that are emerging from the third world will only fail to realize their righteous destiny of controlling the global economy if they fall into the welfare state trap that has destroyed the West.

  6. Bill, I think you just want it to be the ‘Great Correction’. That doesn’t mean it will happen.

    Don’t get me wrong, I think a correction will happen, I doubt it will be the correction that brings EVERYTHING back to reality though. There’s always someone in a position of power willing to dodge up some rules for some easy money.

  7. Ross, thank you for the compliment.
    I picked my sentiment about American businesses still being most productive and innovative from one of the articles on either DR or MM sites in USA. Unfortunately I cannot find that article now, but it said that companies overhauled their businesses to survive with low prices and no credit. They stock less or nothing at all and manufacture on demand. They cut costs to the bone. They are lean and mean.

    I don’t have enough contacts to make a meaningful survey of US corporations; the ones that I do know are “mixed”. I suppose they are like people – there are bright ones, there are hardworking ones, and there are parasites. In the recent decades, USA gave birth to a whole family of IT corporations – Apple, Microsoft, Oracle, and most recently, Google. These companies started as 2-men shops and grew through a remarkable combination of talent, curiosity, sweat, support and greed. Only in Silicon Valley you will find this mix that proved so fertile for new technologies. Taxpayer-sponsored research like in Europe or CSIRO here just does not cut it – not enough motivation.

    I know there are many parasites in US who are like deadweight, pulling down the productive enterprises. But I believe they are the ones that will be washed out, together with “funny money”.

  8. @SV
    “Comment by SV on 26 March 2010:

    Ross, thank you for the compliment.
    I picked my sentiment about American businesses still being most productive and innovative from one of the articles on either DR or MM sites in USA. Unfortunately I cannot find that article now, but it said that companies overhauled their businesses to survive with low prices and no credit. They stock less or nothing at all and manufacture on demand. They cut costs to the bone. They are lean and mean.”

    The system is called APICS (American Production Inventory Control Systems) Which started in the 50’s but never really started to take a hold in the US until the 80’s, It deals with lead times and JIT (Just in Time) production and inventory control.. the system works well and can be tweaked for just about any business.. with 10’s of thousands of businesses in the US and the world (Japan is a big believer of APICS and is tipped to have a resurgence in it’s fortunes)
    it has taken too long to be implemented by many.. many that now may not survive. The lean mean companies that have systems in place have a very good chance of surviving this GFC and prospering on the other side of it..

    March 26, 2010
  9. Hmmmmm – europe in the 18th century?

    “the culture that the West (generally) uprooted a long time ago: corruption, favoritism, blending of state and business, the cast system, low productivity of cheap labor.
    People are young – because they die young.”

  10. Intelligence is half the battle (at least), and I guess guns make up the rest.

    India’s and China’s success continues purely because it is permitted by its allies and trade partners. And much of the rise of the English speaking nations is owed to superior intelligence and superior statecraft – this advantage is not really waning. As much as these nations are blooming and booming, their rate of growth and population size is a vulnerability, and in some respects the two are on a collision course.

    Think of who is keeping their troops in continual readiness through actual combat, who is producing and selling all the weapons (and thereby determining the global military balance between potential warring nations), who is mopping up all the traffic on the Internet, and who is roaming the world bankrupting nations at will.

  11. SV/Shoes, sorry for belated response. My contention is that offshoring was the fiddle that made productivity appear improved and yes it started in Volcker’s 80’s. It was more than enough to offset his USD depreciation (was reminded of James Baker’s call on Japan and Germany exchange rates in those years that set off a NYC rout – timely reminder with same on yuan).

    I was involved with a business that was intimate with the sports shoe “virtual company” phenomena as well as various transplant models from mfg component offshoring leaving only screwdriver assembly in the US to taking the Sears model supply side back offshore and catching inventory mid outbound distribution. And I won’t even start on The Gap who got a bit too cute with the whole thing. It all presents as productivity gain in the same manner that all outsourcing does. The difference is that the increased productivity is in another geo with its own national accounts and balance of payments. There were plants in Mexico and Canada that benefited too, even Mitsubishi-Chrysler to get under the radar using NAFTA.


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