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Monday, June 29, 2009

No bull market until the market sorts things out

[O]nce a bubble has exploded, it can’t be reflated. The feds can put out new money and credit – but it goes somewhere else.

What blew up in ’07-’08 was the bubble machine itself…the compressor that the Committee to Save the World built. It pumped up property prices. With rising property prices, consumers had so much credit that almost every investment seemed like a good one. In China, they built factories to make geegaws… In the US they built malls to sell them. Americans would buy anything!

Naturally, many of the financial decisions from this period proved to be bad ones. And now they’re being sorted out. Investments are being written down, written off…and good riddance! Consumers are sorting out their own balance sheets too – cutting spending and paying down debt.

Until these things are sorted out, there will be no real boom on Wall Street.
--from "Curing One Financial Disaster With a Worse One" by Bill Bonner

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