Great Depression Online Archive Issue:

Borrowing Money to Buy GDP Growth

Great Depression Online
Long Beach, CA
August 14, 2009

Inside This Issue You Will Discover…

*** The Great Depression 2 of 2012
*** A Bunch of Gobbledygook
*** Borrowing Money to Buy GDP Growth
*** And More

The Great Depression 2 of 2012

Paul Farrell, over at MarketWatch, says were in a new bull market.  He also says it will inflate into a new bubble…and ultimately a new meltdown by 2012.

“Yes, folks, a new bubble cycle is already in motion,” says Farrell.  “You can feel the energy building, the kind that fueled the meltdowns of 1998, 2000 and 2007.”

What’s more, explains Farrell, “Americans want another bull, another bubble, even another meltdown.”

The reason we want it, says Farrell, is for no other reason than, “this is what makes us America.”

~~~~~~Still Available~~~~~~

Our friends over at Elliott Wave International (EWI) have just informed us that their 45-page eBook, The Best of Trader’s Classroom, is still available free until August 17.  A one-week extension has been granted due to an overwhelmingly positive response of thousands of downloads in just two weeks.  The Best of Trader’s Classroom takes the very best lessons from their popular -- and expensive – Trader’s Classroom Collection of eBooks and serves them up in one valuable 45-page report.  Pick Up Your Copy. 

~~~~~~~~~~~~~~~~~~~~~~~~~

Luckily Farrell offers some handy advice on how to profit from it…

“Ride it up for a couple years, then pray you’ll have enough brain left to bail out in time before the crash (most don’t) because at that point the euphoria is blinding, like a cocaine addiction.”

According to Farrell the next meltdown will bring revolution with it too…

“We predicted the ‘Great Depression 2’ around 2012.  Well, we doubt taxpayers will passively sit one more time, like in the 1930s, in 2000, and the past few years.  Next time voters will take a page from the history books about past revolutions in the American Colonies, France and Russia.”

Farrell’s predictions seem quite bleak to us.  Good grief.  But maybe he’s right.  The economy’s bounced from boom to bust over the last decade like a bipolar manic-depressive.  Maybe the next bubble has already begun.

Perhaps the current stock market run-up is more than just a suckers rally…perhaps it’s the early phase of an epic bubble…perhaps we’re even heading for DOW 36,000. 

A Bunch of Gobbledygook

DOW 36,000, if you don’t remember, was the title of a book by James Glassman and Kevin Hassett.  It was published in 1999, not long before the dot-com bubble popped, and predicted the DOW would rise to 36,000 within just a few years.

Now, ten years later, the DOW’s at about 9,400, and, in our opinion, looks due for a sell-off.  We’d prefer for the current stock market run-up to peter out sooner rather than later because we don’t think the economy can handle another bubble and bust right now.

Yet no one really knows what is going on…particularly those who are supposed to know most. 

In fact, the Federal Open Market Committee announced on Wednesday “that economic activity is leveling out.”

They also added that “household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”

“Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.”

Sounds like a bunch of gobbledygook to us.

Borrowing Money to Buy GDP Growth

Lastly, we learned yesterday from the Wall Street Journal that…

“The federal government spent more than it pocketed in July, logging its 10th straight month of deficits at a time of growing public concern over how the country will pay for an ambitious health-care overhaul and other priorities of the Obama administration.

“The Treasury Department Wednesday said in its monthly budget statement that the government was $180.68 billion in the red during July.”

On an annualized basis, that comes out to over $2.1 trillion in new debt.

We predict that for the third quarter of 2009 the U.S. economy will eke out what appears to be a half percent of positive GDP growth.  We suspect economists and the government will celebrate with merriment and jubilation that the recession is over…that we have triumphed over fear itself.

But what’s a half percent of GDP growth if you have to run up $542 billion in debt to buy it?

By our rough calculations, if the U.S. GDP is $14 trillion, a half percent of GDP growth comes out to $70 billion.  So in other words, for every $1 of borrowed money the government spends, the economy gives back about $0.13 of new growth.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Our friends over at Elliott Wave International (EWI) have just informed us that their 45-page eBook, The Best of Trader’s Classroom, is still available free until August 17.  A one-week extension has been granted due to an overwhelmingly positive response of thousands of downloads in just two weeks.  The Best of Trader’s Classroom takes the very best lessons from their popular -- and expensive – Trader’s Classroom Collection of eBooks and serves them up in one valuable 45-page report.  Pick Up Your Copy.

 

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