The Dow Gives Up the Post-ZIRP (Zero interest rate policy) Gains


It seems simple enough to us. Almost too simple.

Birds gotta fly. Fish gotta swim. The feds gotta print money. Why? Because there isn’t any other good way for them to get it. And because the economy is getting worse…not better. The feds feel they have to “do something” to fix the situation. That is the depth of their simpleton machine philosophy – a correction is a “problem”…problems need to be fixed.

The problem as they see it is that Americans don’t have enough money. And since they don’t have enough they don’t spend enough. And because they don’t spend enough, the whole consumer economy sinks.

Yesterday, the Dow lost another 219 points – it has given up almost all the post-ZIRP gains. You remember ZIRP? Zero interest rate policy. The Japanese tried it; it didn’t work. So, now it’s America’s turn. After the Fed announced its ZIRP, the Dow shot up more than 300 points. Now, the Fed has used up its last 100 basis points…and the Dow is back to where it started.

We’ll give you the rest of our market update and then return to our point:

The Washington Post suggests that hedge funds might go extinct as a result of this downturn. That would be a shame; they are such a convenient way to separate fools from their money.

We didn’t notice it when we were in LA last week, but California has been especially hard hit. House prices in many areas are down 40%. Towns are going bankrupt. And the state has had to stop billions of dollars’ worth of new projects in order to protect its remaining cash. Bankruptcy…drought…fire and brimstone – our California Babylon seems to be getting an almost Biblical judgment.

And now we’re seeing the Revenge of the Dustbowl. You remember, during the ’30s, there was a drought in Oklahoma, Kansas, and parts of Texas. The rich earth turned to dust and practically blew away. The poor farmers couldn’t pay their mortgages…and couldn’t raise crops. So, they loaded what they could salvage onto their Tin Lizzies and drove to California, where they tried to get jobs picking fruit.

The natives weren’t always friendly. Californians had their own problems. They didn’t want any more Oakies on the job market. So, they tried to turn them back at the border.

Now, 75 years later, it’s the Californians who are pulling up stakes. For the first time in history, more people are leaving the Golden State than entering it.

And pity the poor old folks in Palm Beach. The island was one of Bernie Madoff’s favorite haunts. And the island’s rich retirees and trust fund heirs were his among his favorite prey. He bilked them out of billions. And now, the Chicago Tribune reports that the pawn shops in Palm Beach are doing a jolly business…

Gold fell $7.90 yesterday…the price is now $860, still well above where it began the year. Gold is the only thing we know that has resisted this bear market. Why so? Because investors suspect that this drama has another act or two. Which brings us back to our point.

The outlook is too simple…too obvious.

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.


  1. Thats an interesting twist. The U.S. becoming a bunch of un-united states?

  2. “And you shall count…seven times seven years…forty-nine years. Then you shall cause the trumpet of the Jubilee to sound on the tenth day of the seventh month; on the day of Atonement [Yom Kippur] you shall make the trumpet to sound throughout all your land. For the fiftieth year shall be holy, a time to proclaim liberty throughout the land to all enslaved debtors, and a time for cancelling of all public and private debts. It shall be a year when all the family estates sold to others shall be returned to the original owners or their heirs” (Leviticus 25:8-10, NKJV/Living Bible).

    Getting debt down to a manageable level is required to solve the global financial crisis.

    This will necessitate a “Great Depression” bringing with it a collapse in share and housing prices and massive unemployment – we have a long way to go.

    Using the USA “Total Credit Market Debt as a % of GDP” cycle, the debt was 176% of GDP in 1929 – the debt saturation point of the upwave. It peaked at 287% in 1933 and then decline to 128% in 1953.

    1953 was then the beginning of the next debt cycle.

    Earlier this year the debt was 340% of GDP.

    It appears that a recovery in the stockmarket will lead to the next debt saturation point and depression.

    The response to the present ‘global’ crisis, similar to others in history, will contribute to the boom similar to the response to the ‘global’ crisis of 1927:

    “… the Federal Reserve promptly began its great burst of expansion and cheap credit in the second half of 1927. This period saw the largest rate of increase of bank reserves during the 1920s, mainly due to massive purchases of U.S. government securities and of bankers’ acceptances, totalling $445 million in the latter half of 1927…” (Kevin Dowd & Richard H. Timberlake, Money and the Nation State, (Edison, Transaction Publications, 1998, p.144).

    Unfortunately the last two ‘great’ depressions led to world war and hegemonic history is crying out that there will be another, but a [balkanised?] America will end up defeated.

    The collapse of Anglo-Saxon capitalism will contribute to the world turning against the Anglo-Saxon nations.

  3. Jon Bain,
    I do not know if you have really taken a good look at the USA, but it is not an Anglo-Saxon nation. It is more a Judo-Greek culture sans any honor.

    Anthony Teamson
    December 30, 2008
  4. One key that would contribute to the defeat and occupation of the United States would be if it were to balkanise.

    This is a possible outcome when the world’s largest debtor nation struggles with debt deflation in the next Great Depression; especially when considering its national suicide –

    Could, in a reverse of history, a Republican South cede from the Union?

    * Harold Meyerson, The Big Bailout Lessons,, December 31, 2008:

    “In matters economic, the Civil War isn’t really over.

    “If Abraham Lincoln were still among the living as he prepared to turn 200 six weeks from now, he might detect in the congressional war over the automaker bailouts a strong echo of the war that defined his presidency. Now as then, the conflict centered on the rival labor systems of North and South. Now as then, the Southerners championed a low-wage, low-benefits system while the North favored a more generous one. And now as then, what sparked the conflict was the North’s fear of the Southern system becoming the national norm. Or, as Lincoln put it, a house divided against itself cannot stand.

    “Over the past century, of course, the conflict between North and South has been between union and non-union labor. The states of the industrial Midwest and the South had common demographics (Appalachian whites and African Americans, though the Northern states also were home to Catholics of Eastern European origin) but developed two distinct economies.

    “Residents of the unionized north enjoyed higher living standards, both from their paychecks and the higher public outlays on health and education, than did their counterparts in the union-resistant South.

    “But, just as Lincoln predicted, the United States was bound to have one labor system prevail, and the debate over the General Motors and Chrysler bailout was really a debate over which system – the United Auto Workers’ or the foreign transplant factories’ – that would be. Where the parallel between periods breaks down, of course, is in partisan alignment. Today’s congressional Republicans are hardly Lincoln’s heirs. If anything, they are descendants of Jefferson Davis’s Confederates…”

    * Jeff Bliss, Bush Honors Roosevelt, Resembles Polk, Historians Say,, September 3, 2004:

    “U.S. President George W. Bush has likened himself to Theodore Roosevelt. Former New York Mayor Rudolph Giuliani puts Bush in league with Winston Churchill. Some historians say a more apt comparison for Bush may be James K. Polk.

    “Polk, who served as president from 1845 to 1849, waged – and some say rushed into – a war based on claims that U.S. security was being threatened that were since proven false

    “Bush may be vindicated by history for his decision to go into Iraq if Polk’s example is any guide, said Kennedy, the award-winning author of `Freedom From Fear: The American People in Depression and War 1929-1945.’…

    “The Mexican War was hugely divisive and helped produce the Civil War less than two decades later,” Kennedy said.”

    When looking at a map of the electoral college state outcome the Republicans won very generally the left of centre and the south; with the Democrats on the west and east coasts.

    This outcome is similar to the division of America in Philip K. Dick’s novel “The Man in the High Castle”. Wikipedia explains the novel’s plot summary:

    “The Man in the High Castle’s point of divergence from our own world occurred when President Franklin D. Roosevelt was assassinated in 1933 by Giuseppe Zangara. He was succeeded by Vice President John Nance Garner, who was subsequently replaced by John W. Brickler. Neither man was able to surmount the Great Depression, and both clung to an isolationist policy regarding the approaching war. This meant that the United States lacked sufficient military capabilities to assist Great Britain and the Soviet Union against Nazi Germany, or itself when the Japanese Empire entered the war in 1941 in this world.

    “The USSR collapsed in 1941 and was occupied by the Nazis… The Japanese, on the other hand, entirely destroyed the United States’ Pacific fleet in a much more expansive attack on Pearl Harbor. Due to Japan’s expanded military capabilities, it was able to invade and occupy Hawaii, Australia, New Zealand and the Southwestern Pacific in the early 1940s. Afterwards, the United States fell to the Axis, with many important cities suffering great damage.

    “By 1948, Allied forces had surrendered to Axis control. The Eastern Seaboard fell under German control, while California, Washington, Oregon, and parts of Nevada were ceded to Japanese rule. The Rocky Mountain States, the Midwest and much of the South West remained as a buffer between the Axis powers. The South was resurrected as a quasi-Nazi puppet state, much like Vichy France. The German Reich and Japanese Empire became the chief superpowers…”.

    The above scenario is reasonably close to what may occur in the future of America, Britain, Canada, Australia and New Zealand – post the Second Great Depression.


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