Depressions seem to be natural occurrences

Dec 21, 2011

Baltimore, Maryland

The year is winding down. The sun is low in the sky. There soon won't be anything left of 2011.

The Dow put in a good performance yesterday - up more than 300 points when we last looked. Housing starts were at a 19-month high...which caused investors to think recovery is right around the corner.

Christmas is coming too.

But at least we know what we want for Christmas - a depression...a merry little depression.

Paul Krugman says we already have one: "It's time to start calling the current situation what it is: a depression."
We should be so lucky!

The nice thing about a depression is that it cures a depression. Stocks collapse. Businesses go broke. Speculators jump from tall buildings. Wages fall. Prices drop. Interest rates sink. And then, with the cost of assets, labor and credit at rock-bottom levels, the scrap dealers, recyclers and entrepreneurs get to work. They pick up the pieces, dust them off, and find ways to make the productive again.

Some years ago, forestry experts realized that trying to prevent or put out forest fires was not always a good thing. Forest fires are natural events. Lightning hit dry tinder. It burnt off the underbrush, laying down valuable ash. The forest was cleared...and fertilized...and ready for new growth.

Today, most foresters believe it is better to protect lives and property, but otherwise let forest fires burn themselves out.

Like forest fires, depressions seem to be natural occurrences. Few people like to see them coming. They call the feds. Within minutes the smoke jumpers are out of their planes...and the feds are on the scene with their water canon and water bombs.

As we saw a few days ago, the feds put $29 trillion to work fighting the Great Correction. If money were water, they flooded the world with a Lake Erie of liquidity. And what did they get for it? One very soggy economy.

The Crash of '21 was followed by the Depression of '20-'21. In terms of lost GDP, it was about the same as the decline of 2008-2009. But in terms of prices it was much worse. Prices fell as much as 18% in a single year. Unemployment approximately doubled. The stock market collapsed 50% and industrial production fell 30%.

Instead of throwing cold water on the depression fire, the government actually poured oil on it. It did exactly the opposite of what our government does today. It did not respond with a program of counter-cyclical spending. It cut spending. According to the Keynesian geniuses of our time - including the aforementioned Nobel Prize winner, Krugman - they made the situation worse.

But it worked! The Great Correction has been smoldering for 5 years. It will probably go on for at least another 5 years...maybe 10 or 15. But the depression that began in January 1920 was over by July of 1921 - just 18 months later. Soon, the economy was booming again.

Why? A depression cleans up mistakes. It burns off bad debt. It lays down a thick blanket of mineral-rich cinders, providing the perfect bed for planting new businesses and hiring new workers.

Oh Santa...give us a real depression in 2012! ---------------------------------------- Have an enriching Saturday! ----------------------------------------

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*** "Feliz Navidad!" they said, driving off in their pick-up.

This part of the nation is being taken over by Spanish-speaking immigrants from Latin America.

Last weekend, we needed help putting up a fence. So we called Francisco...a friend of a friend.

"How many people do you want?" he asked.

We settled on three. They arrived at 8AM. They declined our offer of coffee and donuts. Instead, they set to work and kept at it all day, except for a very brief break for lunch. It was cold. But they also declined our offer of a chair in front of the fire in the kitchen. They preferred to sit on a log outside and eat their sandwiches in the open air.

They worked Saturday and Sunday. Rarely pausing. Rarely talking.

"Where are you from," they asked us.

"From right here..." we replied.

They looked puzzled.

"But how come you speak Spanish," they wanted to know?

What is odd about these immigrants is that they keep to themselves. Francisco has been in the US for 10 years. Yet he barely speaks any English. The others spoke little English too. They have their own churches. Their own shops. Their own communities.

When the sun went down on Sunday, we settled up. We paid $817 in cash. About $15 an hour/hombre.

*** The US has been taken over by zombies. The half-dead, flesh-eating monsters dominate our major industries - finance, health, education and defense. The health care system is supposed to run by private enterprise. It's supposed to be free and dynamic, responding to market pressures and adapting to consumer demand. Porter says it has been corrupted. As you can see for yourself, it is degenerate...and zombified:
Think about the new prescription drug benefit - 2003's Medicare Modernization Act. The law provided public funding for both public and private prescription drug benefits. (IBM, for example, estimated it would save $400 million over 10 years on retiree benefits thanks to the law.) At the same time, the law banned the federal government from negotiating with pharmaceutical companies. In summary, the law basically requires the federal government to pay for the prescription drugs of just about anyone over the age of 65 and requires the government to pay full retail prices.

There are now around 25 million beneficiaries of this law (not including the pharmaceutical companies). The average annual benefit is currently about $1,500. The total cost of the legislation over the next decade is expected to be around $1 trillion. This represents the largest expansion of Medicare in the history of the U.S.

The benefit was approved by a Republican-dominated Congress, in a midnight vote. Louisiana Republican Billy Tauzin, then chairman of the Committee on Energy and Commerce, which oversees the pharmaceutical industry, organized the vote. Two months later, Tauzin resigned his seat and took a job paying $2.5 million per year as a lobbyist for the Pharmaceutical Research and Manufacturers of America. The pharmaceutical industry continues to spend $100 million per year on campaign contributions and lobbying.

Americans are left paying the world's highest prices for drugs. Worse, we have extended the entitlement sentiment into the one area of the economy where personal responsibility is crucial. For most people, good health can be achieved by maintaining a disciplined diet and simple exercise. Offering free pills in lieu of such steps will only further the serious problem of diabetes and obesity we face.

And remember... this law was passed by Republicans and signed into law by a Republican president.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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2 Responses to "Depressions seem to be natural occurrences"


Dec 22, 2011

i think i saw Billy Tauzin in the movie 'sicko'. i will see that movie again now (i have a copy downloaded long back in the hard disk).


Hasit Hemani

Dec 21, 2011

Lobbying in America has outlived its value. It has become a monster which fosters not only corruption but even anti people policies. Its time some anti lobbing laws should be enacted to control its misuse. In India lobbyist are worst than pimps. Amar Singh,Agnivesh are a few examples.Congress and BJP parties are full of such pests and rodents. Some rodents have become so powerful that they control sizable fraction of government administration.

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