We haven't gotten to Bedford Springs yet. We're still sitting in the airport lounge in Paris. Summer is over. It's back to work...12 hours a day...just like we've worked for the past 39 years.
When we were in college we had no money. In the summer we had to work two jobs to try to save enough cash to continue. One summer, we worked in a boatyard in Annapolis early in the morning...then, we did an evening shift painting television towers. Painting the towers was such dangerous work our poor mother begged us to quit. But the money was good - $5.25 an hour - so we had to keep at it. More about that in a minute...
We've only got a minute before they call our flight, so we'll make this short. Nothing much happened in the markets on Friday...except that the price of gold rose $11. Gold seems ready for another attack on the $1,000 level. Will it get there? Maybe...maybe not.
Humility! Humility!
We have to remember that the world economy has never, ever been in a fix like this. We don't know where it will lead.
The big picture is that the credit cycle - expanding since the end of WWII - seems to be contracting.
"The joy of buying falls victim to recession," says a headline in today's International Herald Tribune. The article tells us how people are planting gardens again...saving money...making do.
This is likely to be a fundamental shift, not a transient one. But - humility! - what do we know?
What we suspect is that the upward trends of the last half a century have now reversed. We're in a period when the excesses and mistakes of the boom/bubble period must be corrected. A new model for the world economy must be found - because China can't continue to sell products to Americans if Americans can't continue to buy them.
But there's more to this big picture. Never before in history have so many government officials been so sure they could stop a correction. And never before have they had more ammunition at their disposal. The numbers are all over the place. And they're huge. The Obama administration, for example, expects to run $9 trillion in deficits over the next 10 years - and that number is based on a recovery! Imagine what will happen if the economy doesn't recover?
Here at The Daily Reckoning, we don't expect a recovery, not now...not never. Because the old model no longer works. Debt got too big...too expensive...too risky. Something had to give.
But what gives now? What happens when a world economy of $50 trillion per year tries to correct and governments try to stop it? What gives when the world's largest debtor borrows $9 trillion trying to prevent nature from taking her course?
Bill Bonner
for The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Painting for Good Money
- Does This Mean You Should Sell Your Gold?
- Where Bill Bonner Invests His Money
- Calling What’s Happening in the Economy a “Credit Crunch” is Misleading
- Summer of Awakening
About the Author
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.
Comment by Robert Blain on 1 September 2009:
I get the Daily Reckoning on my home email and like what I read.
What I think Bonner is missing is the destruction of the US manufacturing base.That manufacturing base is the key to the US swimming or sinking. Yeah, precious metals are a good hedge but they aren't the entire picture: you can hold up a stringer full of fish(gold profits), but if the fishing barge is sinking what good is that? In the long run we are headed to war with the Chinese:we gave our industrial base to the Chinese, created huge Chinese appetites for raw materials, and now we will suffer the consequences.....
Comment by Ken Seech on 1 September 2009:
I feel the world economic crisis will mean boom time for Sub Saharan Africa
At times like these, investors must bring their money to these countries where there is abundant resources and a willing workforce
Comment by dsylexic on 1 September 2009:
Rober blain is wrong. The industrial base in the US has not been destroyed.
read http://cafehayek.com/2009/04/the-state-of-manufacturing-in-the-united-states.html
The facts" story in mid-February, the U.S. "by far remains the world's
leading manufacturer," producing goods valued at a record $1.6 trillion
in 2007 — nearly double the $811 billion produced a decade earlier.
Indeed, the AP writer noted, "For every $1 of value produced in China's
factories [in 2007], America generated $2.50." Not bad for a country
that doesn't produce anything anymore
Comment by Pete on 1 September 2009:
dsylexic: Perhaps everyone is wrong on that one?
Because that data is from 2007. A time of inflated prices, including corn prices due to the 'ethanol' debacle.
It would also be interesting to know how much of the $1.6 trillion was exported overseas, and how much was consumed internally. Because the US's capacity for internal consumption has been somewhat hamstrung (eg, Detroit)
Also...I wonder how much of that manufacturing is actually entertainment related (eg, Hollywood). What actually constitutes 'manufacturing'?
In Australia I think we have a similar problem - a lot of our manufacturing is simply outsourced to other countries as we struggle to produce products cost effectively (my understanding is that this is particularly due to the wage costs of manufacture). Surely the US has that same issue?
Comment by Greg Atkinson on 1 September 2009:
Pete just think of things that blow up other things, that is a big chunk of what the U.S. manufactures and exports. The problem with Oz is we do very little value adding, this is not the case with the U.S. Sure they have outsourced a lot of manufacturing but they still pump out everything from satellites to really good steak knives.
Comment by Pete on 2 September 2009:
Good point Greg.
Still, I wonder how much their manufacturing output has dropped since the GFC started. Compared with China for instance.
The gap may be far smaller than was mentioned for 2007.
Comment by dsylexic on 2 September 2009:
I have no quibble with the fact that it may dropped since the GFC. My limited pointed being that the US manufacturing has more than doubled in the last decade. Thats hardly what can call as "giving our industrial base to china". It surely may have taken a beating in last years or so.But which sector of the economy didnt.
Just because the US doesnt make toys or kitchenware or clothes doesnt mean manufacturing is gone.It now supplies huge capital intensive equipment(think boeing,caterpillar etc)