- By Bill Bonner
Stocks rose 121 Dow points yesterday. Bonds rose a little too. And nobody wants it to stop:
"Nobody wants to see the end of the credit bubble. Nobody wants a depression."
In a series of meetings Tuesday and Wednesday, we explained why nobody but us is rooting for a depression.
Yes, there's no point in hiding it. We would like to see a depression. Short, swift, and decisive...a quick and sharp end to the biggest credit expansion in all history. As secretary of the Treasury Andrew Mellon might have said: Liquidate stocks, liquidate bonds, liquidate real estate...liquidate the whole mess...
"It's unbelievable," said colleague Merryn Somerset Webb, editor of MoneyWeek Magazine in London. "Property prices here in the city just keep going up and up...it's gotten so expensive that our writers can't afford to live here anymore. I'm thinking of moving the whole business to Edinburgh."
You can't build a solid economy on the jelly of unaffordable housing, unpayable debts and unsustainable asset prices. But that's what we've got. And the only way to get down to something more reliable...more real...and more healthy...is to wash away the financial glop and goo of that has accumulated during the last 30 years.
One way or another, the credit expansion that began after WWII must come to an end. About that we have no doubt. Contrary to the evidence of the last half a century, credit cannot increase faster than income forever. It is mathematically, economically, and financially impossible.
But when will it stop?
"The trouble with you guys," says a loyal reader (or words to that effect), "is that you are generally right...but you are always early."
Early? Yes. Certainly. In the case of the credit bubble we were nearly 40 years too soon. We saw the handwriting on the wall back in the '70s. We thought it said "The End is Nigh" for the paper money system. After all, no paper money ever lasted for very long.
But we misread the graffiti. We don't know where 'nigh' is but we're pretty sure the end wasn't close to it. Because, here we are, 4 decades later, and the paper money system is still going strong.
And guess what? We are still sure that it is headed for a debacle.
"It could last another 2 or 3 decades." That was the answer we got from a central banker. We had the rare treat of dining with a central banker last night. We'll keep his identity to ourselves, to protect his job and the reputation of the bank. But he was a breath of fresh air. And a relief. Now, we can say with confidence: not all central bankers are idiots.
"It is doomed, of course. But not necessarily soon. As long as the major tendency of the economy is towards deflation, central banks can print money without causing consumer price inflation. They can buy bonds and keep buying them. When they buy bonds they lower interest rates. They also finance government deficits. And, from Japan's example, it looks like they can do it almost indefinitely. "
That's right. They can keep this gig going...until they can't. When it ends is anybody's guess. It is in the future, where no man goeth with GPS or map in hand.
And only we goeth there in hopes of discovering a depression. Everyone else hopes to discover many more years of asset price inflation, boom, bubble, and central bank management.
This distinction is important to investors. At least WE think so. Everyone else in government, industry, commerce and academia has an unspoken prejudice for the bubble. Wall Street wants to sell you stocks and bonds. Industry and commerce have products to unload, not to mention mergers and acquisitions to finance. Governments all over the planet are running deficits and counting on low interest rates to pay for their zombie wars and crony programs.
Who speaks for the future? Who stands up for a healthy, sane, real economy? Who champions the cause of the little guy...the small investor...the small businessman...the ordinary working stiff?
Who wants a depression?
Tune in tomorrow!
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.