Depressions Take Time
By Bill Bonner
Everything is working out just like we thought it would. The stock market is performing as expected. The economy is on track. Even the politicians are doing what they thought they would.
Let’s begin with the stimulus/bailout/boondoggle/BS plan. As anticipated, it has failed. That is, the economy is getting worse, not better. It has failed the test set for it by its own creators. Back when the Obama Team was arguing for a big bailout bill, it warned that without a bailout, unemployment would rise above 8% in 2009. ‘Pass this bill today,’ said Ben Bernanke, or words to that effect, ‘or there may not be a tomorrow for the US economy.’
Congress dutifully bent its back to the task of adding boondoggles to the bill and then okayed the measure. And here we are, in the middle of 2009, and the unemployment rate is already at 9.4%.
Even at the time, it was obvious that the hacks in the administration had no idea what was going on. They were just guessing about the economy and taking advantage of the situation to pass out more money that taxpayers hadn’t even earned yet.
As predicted, the spending didn’t make the situation better; if anything, it probably made it worse – by delaying the process of destruction, and hence retarding the process of creative reconstruction too.
We recall our other forecast too: when the bailout doesn’t work, they’ll pass another one. And so, in yesterday’s New York Times, there is David Leonhardt urging the pols to even bigger acts of absurdity:
“The economy really may need more help,” he says.
Yes, it will need more help. Especially if it keeps getting the kind of help it’s been getting.
The stock market is acting more or less as we thought it would too. The big bounce began on the 9th of March. It’s been almost four months now...and the bounce should be getting near its peak...and beginning to fall again. Just look at a chart of the Dow since March. You’ll see exactly that. Like a cannonball, it went up...and now it seems to be arching over for its fall to the ground.
As stocks roll over, the economic news rolls over too.
Yesterday’s issue of USA Today featured a report that said small businesses are going broke faster than expected. Small businesses are supposed to be the survivors. Like mammals in the Ice Age, they replace the dinosaurs. In a recession, big, costly, inflexible companies are supposed to get hit the hardest...leaving niches for small, nimble, low-cost competitors to slip into. These small businesses establish toeholds during the recession...hire people...and then scale up to the peak of commerce when the boom comes.
But this time it’s different. Small businesses are collapsing along with big ones. In April, for example, more than small 8,000 businesses went broke and filed for Chapter 11.
In addition to the business bankruptcies are the personal bankruptcies. According to the Los Angeles Times, the rate of personal bankruptcy is soaring in Southern California.
In April, according to David Rosenberg at Gluskin Sheff, the feds added $121 million (at an annual rate) in total stimulus to the consumer economy – including tax reduction and increased benefits. In May, the total stimulus rose to $163 million. How come so many bankruptcies when the feds were giving away so much money?
The answer, says Rosenberg, is that consumers didn’t spend the money; they saved it. Consumer spending rose just $1 billion April – despite $121 billion of stimulus. In May it rose $25 billion – despite a ‘stimulus’ 6 times that amount.
Meanwhile, the saving rate, which had been only 0.2% in March of 2008 exploded to nearly 7% in May 2009.
No consumer spending, no sales. No sales, no revenues. No revenues...no one can stay in business.
No small businesses. No new jobs. No new jobs, no economic recovery.
No economic recovery and the meddlers are back on the Hill asking for more power and money.
No surprise there.
