Gold News

The Beard Is Slipping

Policymakers have been hiding the true state of the economy...

GOLD SHOT UP $25 last Friday. At this rate, it will be at $1,600 by the end of this week, writes Bill Bonner in his Daily Reckoning.

Why? The smart money is betting that the feds will keep pushing inflation. But today, let's ignore the feds and talk about what's happening in the economy.

You saw the latest GDP numbers last week. In the first quarter, the economy grew at a 1.8% annual rate, said the estimate. That is equivalent to the average real rate of growth for the US economy since 1925. The only trouble is, this growth isn't real. It's counterfeit. It's phony.

The feds blamed the decline in growth on the weather. Paul Krugman blames the feds for being too timid. Bernanke said growth wasn't so bad. He said it was "moderate."

So, let's step back. What do you see?

Real estate is still going down. No doubt about that...

The unemployment rate is going down too...but most of the improvement has been made by taking people who can't find a job off the list! Sounds crazy. But that's what they do. If you don't find a job in a certain amount of time, they figure you've given up.

But does that mean you're no longer unemployed? Of course not. It means you're worse off than ever. You're one of the "long-term" unemployed...out of work for so long that employers are reluctant to take you back. They think you've lost the habit of work...and your skills are out-of-date.

To give you an idea of how many people are looking for work, McDonald's just did a big nationwide hiring campaign. While it hired a few thousand new employees, it had to turn away 932,000 applicants!

Even those who have work are losing income. Wages are flat...and falling when you adjust them for inflation properly.

Consumer prices rose at a 7.4% annual rate in the first quarter, according to MIT's Billion Prices Project. Hmmm... How many people got a 7% + raise ?

GDP is going up at a 1.8% rate. Adjust that number for population growth...and a correct measure of inflation...and you see that the average person is getting poorer. "Moderate" growth? There's no growth at all.

These facts are NOT consistent with the feds' economic outlook. They ARE consistent with our Great Correction outlook.

The feds thought they could fight the slump in the usual way - with more EZ cash and credit. Now they find that none of their programs - TARP, TALF, QE1, QE2, and zero interest rates - has worked.

Why? Because EZ money is part of the problem, not part of the solution.

In our view, the economy (with the help of Mr. Market) is correcting a number of things...

..a half century of credit expansion (debt increases were mostly prudent and productive in the '50s and '60s...but not in the '90s and '00s)

..a bubble in housing and finance, caused largely by EZ money overvalued stock market (the correction began in Jan. 2000...but the bottom still hasn't been found) - also caused by EZ money

..a 30-year bull market in bonds

..a foolish monetary system set up by Richard Nixon in 1971.

That seems like more than enough work even for a Great Correction.

But wait...there's more...

Nearly 10 years ago we wrote a book on the subject (with Addison Wiggin). We predicted that the US would follow Japan into a long bear market. It was more of an intuition than real analysis. And it was wrong...or so it appeared.

The feds intervened so aggressively in 2001 and after, it looked like our intuition was faulty. Stocks rebounded...and went on to greater glory. So did the US economy...which went into bubble-mode in '05-'07.

But now our intuition doesn't look so bad after all. Japan went into a slump in 1990. It has never come out. Employment is about the same today as it was 21 years ago. Stocks sell at a third of their 1990 prices. And real estate is still down 50% to 75%.

In the US, take out the government deficits...and unsustainable debt- financed consumption...and the US private sector economy has gone nowhere in the last decade. No more real jobs. No more real income. No more real GDP per capita.

And the stock market, adjusted for inflation, is lower than it was in January 2000.

It now looks like the Great Correction actually began at the very beginning of the 21st century, in January 2000. For 10 years, it was disguised by the feds. Now, the phony beard is slipping off.

We've been in a correction for more than a decade already. And if we follow the Japanese model...we'll still be in a Great Correction in 2021.

If the feds don't blow us up first...

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New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

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