Unpopular Cures for an Economic Depression

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So far, so good.

Things keep happening, more or less as they should.

That is, the US and European economies keep falling apart. And the fixers keep failing to put them back together again.

Just as we expected.

Trying to fix an economic depression is expensive…. The US government spends $1.60 for every $1 it receives in taxes. This is a recipe for a disaster, not for a recovery.

Worse. It actually prevents a real recovery from happening, by blocking the market’s natural self-healing system

Let us ask you this, dear reader: what’s the cure for an economic depression?

Answer: an economic depression!

An economic depression reduces asset prices, consumer prices, and interest rates. This makes it possible for investors and business people to redirect their efforts on projects that will work. A car wash, for example, may not be a good investment at $100,000. But at $50,000 it might produce good cash-flow.

An investment may not make sense if you have to borrow money at 6% interest. But at 3%…the numbers work.

In an ideal world the price of labor falls too. You may not be willing or able to hire extra workers at $10 an hour. But how about at $5?

Trouble is, the feds interfere with these self-healing trends. Minimum wage laws prevent employers from taking advantage of low- quality labor at low prices. Unemployment compensation keeps workers from discounting their own labor. Zero interest rates and bailouts keep the zombies on their feet. Even in the best of circumstances — that is, in a free market — labor rates tend to be “sticky.” They don’t adjust quickly. With the feds applying so much glue, it’s amazing if they can move at all.

But eventually, an economic depression works its magic. Prices fall. Investors are wiped out. Businesses go bust. The ‘destruction’ of the capital stock frees up both money and labor for new applications. The ‘creative’ part can begin.

Not this time. The feds have created a darkness without a dawn. The glass is 100% empty. There are plenty of clouds. But no silver linings.

Regards,

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.
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christy
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O my, this is all wrong, the “pain caucus”! A depression is cured by a depression! lol

wpDiscuz
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