Gold News

The Growing Fashion for Less

The broad market has a lot of adjusting to do...with or without "Vegetable Armageddon"...

WHAT HAPPENS to a consumer economy when consumers don't have any money? The economy shrinks, says Bill Bonner, founder of the Daily Reckoning.

But wait, there's something else going on. This is an economy that depends on MORE — more credit, more sales, more income, more people...more of everything. But now it faces LESS. Consumers have less money. They spend less. They drive less. They borrow less. 

Less is becoming fashionable, chic, trendy. People now brag about how little they spend...and about what cheapskates they are. They proudly show off their imitation watches...and invite friends to their simple digs. McMansion is giving way to McModest.

And it looks to us as though the feds can't turn this around. Every time, since WWII, when consumers slowed down, the feds intervened. They got the economy revved up by giving it more. This time they can't do it. Because more no longer works. It no longer pays. Give the consumer more credit? The Fed's key rate has been at zero for three years already. What else can it do?

Further inputs of energy or investment won't pay off either. Because the innovations that led to such spectacular growth over the last two centuries have been fully implemented. Who doesn't have an automobile? What farm lacks a tractor? Yes, they can be refined and improved...but the era of 5% growth is over — in the developed world.

Trouble is, the economies of the developed countries — and their governments — evolved in an era of growth. They depend on it. Without it, they die.

And what can we do? We have to wipe away our tears, turn our backs, and move on. We have to say 'adieu'...and turn the page. We're usually such soft-hearted diehards here at The Daily Reckoning. Typically, we stand behind lost causes and underdogs to the finish.

But we're not standing behind this bubble-crazed, credit addicted economy. We'll let Bernanke, Geithner, and Summers do that. The poor thing is ailing, it's true. It needs life support, no doubt about it. But we'd put a plastic bag over its head and be done with it. It's not worth saving. It's a fraud and a cad.

That's true of the governments of the developed countries too. They're growth governments. They can't survive in a no-growth world.

Give them the coup de grace too.

You know the old expression, attributed to a Rothschild, "buy when blood is running in the streets."

Is it time to buy now?

Well, it is certainly true that there are some bargains. Especially in the emerging markets. We recently heard about a stock whose price-to-earnings ratio is now below one. You could buy the whole company for what the company will earn in profits between now and next June. It's a food company that is priced for what one of our advisers calls "Vegetable Armageddon." There's so much blood in the streets around company headquarters that the cabbages have turned red.

Does that mean it is time to buy? Maybe.

But the broad market probably has a ways to go...a long ways. Maybe another 3,000 points down. And maybe it will take another 10 years to get there.

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Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, 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 more recently the election of President Trump.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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