Great Depression Online Archive Issue:

The World's All Tapped Out

Great Depression Online
Long Beach, CA
March 02, 2010

Inside This Issue You Will Discover…

*** “A One Hit Wonder”
*** A Sea of Red
*** The World’s All Tapped Out
*** And More

“A One Hit Wonder”

Last week the Commerce Department revealed that not only did the economy grow at 5.7 percent during the fourth quarter…it actually grew more – 5.9 percent.  On first glance this signals a robust economic recovery is in the works.

But, alas, that growth has already come and gone…and since then something’s slipped.  The rug has been pulled out from under the ostensible economic recovery.  We came across many reports of this over the weekend…

“The economy is losing steam,” said AP.

The fourth quarter growth surge was “a one-hit wonder,” said one Stuart Hoffman, chief economist at PNC Financial Services Group.

~~~~~~Surviving Deflation~~~~~~

Deflation is more than just “falling prices.”  Robert Prechter explains why.

The most common misunderstanding about inflation and deflation -- echoed even by some renowned economists -- is the idea that inflation is rising prices and deflation is falling prices.  General price changes, though, are simply effects.  Effects of what?

Keep reading to find out. 

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

Here’s a quick rundown of the economy’s latest skid…

Consumer confidence in February fell to 46, its lowest level since April, and orders for durable goods – excluding transportation – fell 0.6 percent, the most since August.  Plus sales of new homes declined 11 percent to an annual pace of 309,000…the lowest level on record.

What does this mean?  We’d say it means the supposed recovery is over.  For Wall Street it meant one thing…

A Sea of Red

It was a sea of read on Wall Street last week too.  Stocks looked the recovery square in the eyes and saw a zombie economy looking back.  They shrieked, and squealed, and someone on the trading floor yelled “sell!”

American Express dropped 2.2 percent for the week on declining credit card revenue.  Caterpillar slumped 2.1 percent.  Coca-Cola fell 5.4 percent.  And Fluor, the largest publicly traded U.S. construction company, dropped 6.8 percent after lowering its earnings forecast.  But that was nothing…

H&R Block crashed 18 percent as higher unemployment took a big bite out of their customer base.  We suspect this will also take a big bite out of government tax revenues.

International markets had a tough go of it too.  Japan’s Nikkei 225 gave up 1.7 percent for the week.  And Germany’s DAX dropped 2.5 percent.

“Investors are coming to grips with the fact that maybe the economic recovery is not going to be as strong as they once thought,” said Greg Woodard, a strategist at Manning & Napier.

That they ever thought there was a recovery at all we’ll never understand.

But not to worry, Ben Bernanke’s on the case…and he knows just what to do…

The World’s All Tapped Out

On Wednesday Bernanke told the House Financial Services Committee the recovery was “nascent.”  We’re not sure if he meant the recovery was budding or burgeoning – or that if you squint your eyes you’d see ‘green shoots.’  But he did note the federal funds rate would remain low “for an extended period.” 

Perhaps we’re not in a nascent economic recovery at all.  Perhaps we’re in a nascent economic depression.  Know one really knows…Bernanke in particular.

The peculiar thing about a depression is that you don’t initially know you’re in one.  In early 1930 no one knew that over the next 10-years the economy wouldn’t grow a lick…or that stocks wouldn’t fully recover for 25-years.  Only a curmudgeon or a fuddy-duddy would have made such an outrageous assertion.

Yet the outrageous happened.  And it could happen again.  In fact, we believe not only that it could happen…but that it is already happening.  Economic thinking and policy went bankrupt long ago.  Now the whole world economy must follow.

Moreover, this time fiscal and monetary hocus-pocus won’t float the economy with ever expanding debt.  The world’s all tapped out.  This time, it seems, the economy will require some painful contortions and structural changes to pull through it. 

We suppose a stable monetary base will have something to do with it.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Deflation requires a precondition: a major societal buildup in the extension of credit.  Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way: “In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following: (a) All were set off by a deflation of excess credit.  This was the one factor in common.”

Surviving Deflation.

 

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