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Friday, July 10, 2009

We’re in a depression, not a recession

According to the headline in the Financial Times, the International Monetary Fund says the recession is ending. Digging deeper into the story, we find that the IMF thinks the recovery may be “weak” and may require more stimulus to get consumers spending again.

As usual, the bank is wrong about everything. There is no recession; it’s a depression.

And it’s not ending; there is no recovery in sight. And more stimulus won’t cause consumers to spend more money.

“It’s really not very complicated,” we told our audience of publishers in London yesterday. “We’re in a depression. Not a recession” . . . .

“It’s a depression. And it will remain a depression until this huge pile of debt accumulated over the last quarter century has been paid down. Until businesses and banks that are no longer viable have gone broke and been restructured. Until consumers have real money to spend – not just more credit. Until those things happen, there is no way for a genuine recovery to take place.

“For more than half a century, the driving force of the world economy has been the willingness of English-speaking consumers to go further and further into debt. That permitted businesses to expand sales and profits

“Now, that trend – that lasted longer than the lifetimes of most of the people in this room – is finished. Consumers aren’t going further into debt. Bankers aren’t lending them more money. Their houses aren’t going up in price…so they have nothing to borrow against. It’s over. And now, after working your whole careers in a growing economy…you have to figure out how to survive in a declining one” . . . .

The feds have put trillions into the financial system. And that’s where it stays. The banks don’t lend because consumers can’t borrow. Their houses – the major source of collateral for the middle class – are going down in price. . . .

[N]ot only is the shift from credit expansion to credit contraction the biggest thing to come along since WWII…there’s also a major shift of wealth and power taking place. The Anglo-Saxon commercial (and military) empire has peaked out. The wealth and power of English speakers has been expanding, relative to the rest of the world, for the past three centuries. That trend, too, seems to have come to an end.
-- from "No Recovery in Sight" by Bill Bonner


Anonymous Anonymous said...

Great post

16/7/09 10:19  

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