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Friday, September 04, 2009

The recession is ending, but the depression is about to start

08/13/09 Ouzilly, France

Hey…how ’bout this rally!

The Dow was up 120 points yesterday. Now, we’re beating the bounce of 1930. The post-crash bounce in 1930 lasted fifth months. Ours began on March 9th…so it is now in its sixth month.

And like 1930, people are coming to believe that recession is almost over…and happy times are here again.

Heck, we’re sure the trouble is behind us now; 53 economists said so! . . .

Yes, now the economy is firing on all cylinders…or just about. Yep. No doubt about it. Still, there are some nagging doubts. The latest figures show foreclosures still increasing – up 7% in July from a year before. And house prices are still going down. And unemployment is still going up. And consumer prices are falling…indicating a Japan-like deflation. And business profits are falling. And consumers are cutting back. But except for that – housing, jobs, sales, profits and deflation – everything is working out beautifully.

Now that we mention it, all the indicators of real economic activity are down.

So, the feds aren’t taking any chances. Yesterday came news that the Fed would continue buying bonds at least through October. And they are not likely to raise rates either. The banks can borrow at practically zero interest…and use the money to buy Treasury bonds. The 10-year yields about 3.7%. In effect, they’re lending the money back to the people they got it from…and earning 3.7% for their trouble.

But, take away the stimulus spending…and the stimulating low interest rates…and what have you got? You’ve got is an economy entering a depression.
--from "No More Giveaways; No More Recovery" by Bill Bonner

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