Great Depression Online Archive Issue:

The Buying Opportunity of a Lifetime

Great Depression Online
Long Beach, CA
February 13, 2009

Inside This Issue You Will Discover…

*** Doubling Down on TARP
*** The Premise is False
*** The Buying Opportunity of a Lifetime
*** And More

Doubling Down on TARP

It was May 1939.  The nation was staggering through a 10-year depression.  And FDR’s Treasury Secretary, Henry Morganthau, addressed Congressional Democrats.

“We have tried spending money.  We are spending more than we have ever spent before and it does not work … I say after eight years of this Administration we have just as much unemployment as when we started … And an enormous debt to boot!”

On Tuesday, nearly 70-years later, President Obama’s Treasury Secretary, Tim Geithner, offered some insights into his plan to save the financial system.  Its main strategy involves doing what Morganthau said does not work…spending more money…and lots of it.  The plan’s being called TARP II and it essentially doubles the spending of TARP. 

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If you remember the Troubled Asset Relief Program (TARP), hatched last year by former Treasury Secretary Hank Paulson, allows the government to purchase $700 billion in toxic debt from banks.  By removing bad debt from the balance sheet of banks, it was thought, they would be free to lend.

So far TARP hasn’t worked…the credit market is still frozen.  Geithner’s solution: double down.  And when that doesn’t work…double down again.

“It is mind boggling to me,” said legendary investor Jim Rogers on CNBC.

“This is not going to solve the problem, it’s going to make it worse.

“Everybody is frozen, trying to figure out ok, what are we worth, what do we do?”

Geithner, it seems, is the last to understand that moving bad debt around doesn’t make it go away.  That just because it’s moved, doesn’t mean it’s gone.

The Premise is False

Upon hearing Geithner’s proposal…Wall Street sold.

The DOW ended Tuesday down 380 points.  On Wednesday it recovered 53 points.  Yet on Thursday it was flat.

And Congress finally reached an agreement on the stimulus bill.  The price tag – last we heard – was $789 billion.

“This represents the beginning of turning our economy around,” Senator Joseph Leiberman remarked when the agreement was announced.

We wish we could share his optimism…but we can’t.  For the whole premise of the stimulus package is false.  The idea that you can solve a crisis caused by too much debt, by spending trillions of dollars of debt based money is pure madness.  Yet, we fear, it’s only just one of the many insulting and irrational raids upon the taxpayer to come 

The Buying Opportunity of a Lifetime

With all the government stimulus and bailouts to save the world from failure, something truly remarkable is happening.  The economy’s transforming, metamorphing, and emerging as a giant zombie.

First the banks.  And next corporations and families that can’t make their mortgage payments.  They’re all being zombified.

Banks that should’ve gone bust, are still in business.  Corporations that should no longer exist, still do.  People that should’ve lost their homes, are still living in them. 

But the appearance is not that of health and vigor.  It is that of a zombie…of the living dead. 

For example, Japan tried pumping money into its economy following a credit crisis in 1990.  Its economy’s gone nowhere for nearly 20-years.  Its markets too.  In fact, the NIKKEI225 peaked at 38,916 on December 29, 1989.  Yesterday it closed at 7,705.  Buy-and-hold investors have lost 80 percent over nearly 20-years.

How will we know if the stimulus bill is working?

If 10-years from now the economy’s lurching aimlessly along like a zombie, we’ll know it was a success.

And if 18-years from now the DOW trades down 80 percent of its October 9, 2007 high of 14,164, we’ll know it was a smashing success.  For that means in 2027 you’ll be able to load up on the DOW at 2,832.  The last time DOW stocks were that cheap was October 1990.

It’ll be the buying opportunity of a lifetime.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Please take a moment this weekend to read the emergency report, How to Survive and Prosper in the Coming Global Depression.  Many of our readers have given it a look and have thanked us for this critical report.  What’s more, it’s free.  Access it here: How to Survive and Prosper in the Coming Global Depression.

 

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