Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

World is Edging Towards Global Depression, Give Collapse a Chance

Economics / Great Depression II Sep 24, 2011 - 11:54 AM GMT

By: Bill_Bonner

Economics

Best Financial Markets Analysis ArticleA big sell-off yesterday. The Dow down 283 points. The 10-year T-note yields only 1.87%. And the price of gold barely budged.

In our opinion all three should be going down. Because the world is edging towards a global depression…


…with the US consumer unable to spend…

…the Chinese economy slowing down…

…and Europe preparing for defaults…

Assets should be going down. Except for US Treasury debt…which should be going up. That’s what happens in a depression.

All of which is making our “solution” to the financial pile up of ’08-’09 look better and better all the time. You’ll recall that we promised to tell you how you could fix the problem in our last exciting installment. This must have left you on the edge of your chair. It sure left us on the edge of our chair; we had to think of a solution overnight!

But it is really very simple: give collapse a chance.

Remember how desperate officialdom was to “prevent a catastrophic collapse?” Both in Europe and America. The European banks bailed out their speculators. Then the governments bailed out their banks. Then, they bailed out the countries that had bailed out their banks.

In America, the government bailed out the banks…the insurance companies…the automakers… About the only industry that wasn’t bailed out was the financial publishing industry. Guess we didn’t send them enough campaign contributions…

Then, the Europeans and the Americans bailed out each other.

And they’re still bailing. The US is running a budget deficit so large that we’ve lost track of it…was it $1.5 trillion? $1.8 trillion?

And the Europeans are preparing another big bailout for Greece…Italy…and who knows who else.

And every bailout makes the world poorer. Because it’s clearly bad money after good. Greece does not suddenly become a good credit risk just because you lend it more money. And Americans won’t be made richer because the feds offer them more debt at an even cheaper rate!

The problem is that doing more of something that doesn’t work is not a good idea. When you lose money on every sale you can’t make it up on volume! Nor is it a good idea to put more money into an investment that isn’t paying off….or to allocate more resources to an industry that stopped producing real benefits a generation ago.

Yes, that’s when the education industry turned sour – in the 1970s. Since then, it’s gotten sourer and sourer…with more and more money spent on education but not a bit of progress to show for it. The youngsters are as dumb as ever.

And the oldsters are even dumber. They want to continue to bailout, subsidize, give credit where it isn’t due, and otherwise funnel huge amounts of money to worn out, unproductive institutions. And for what? So they can avoid “a catastrophic collapse.”

Well, here at The Daily Reckoning we say ‘bring it on.’ Let’s have that catastrophic collapse and get it over with. Better now than later. It will only be worse if it is postponed.

But seriously, how would we ‘fix’ the situation? Well…that is how we’d fix the situation. We were being serious. We’re always serious. And earnest. And trying to do our best to help.

But that’s not all we would do. The problem really has two parts to it.

One part is natural, inevitable…it can’t be fixed. When you borrow too much money, you have to pay it back. Or default. Better to do it as soon as possible.

Likewise, if your company isn’t profitable…if your industry can’t take resources and add value to them…then you should go broke. Again, the sooner the better.

In these cases, the ‘fix’ is obvious. Bite the bullet.

But there’s more. There is also the zombie factor. This is something that can be fixed easily. As institutions age – including private industries – they attract parasites. The next thing you know you’re meeting with lawyers and working with regulators. There’s an agency hounding you about one thing…and a department on your tail for another.

And there are taxes up the kazoo. And debt. And extra costs.

You pay for stamps and handicapped parking places. You pay for well-meaning kids to offer advice to hardened heroin addicts…and lobbyists can get a break in the next tax bill. You pay for goons to frisk you are airports and hit squads to take out “insurgents” in cities you never heard of.

Oh, and don’t forget the kid who takes out loans so he can get a degree in the Emotional Life of Fruit Trees…and then defaults on his student debt. And the slob who uses Medicaid and disability to avoid having to go to work.

It’s all part of the picture of a society in need of a revolution…or a kick in the pants.

We propose one or the other.

How? Easy peasy. First, allow businesses and nations to go broke. No subsidies. No bailouts. No below-market loans. Just let them crash and burn. It will be fun to watch.

Second, cut taxes to 10%. That’s all. Just 10%. Like a tithe. With no deductions. No ifs…ands…or buts. Russia already has a tax like this. And it is booming.

And prohibit borrowing. Or money printing. These measures would solve the US debt problem overnight. They would protect the dollar. They would reassure investors, businessmen and householders.

They would also reduce the total US budget from about $3.6 trillion today down to less than $1 trillion. We don’t much care what the feds do with the money. They will surely waste most of it. But so what? A flat 10% tax rate would cut out most of the zombies. Freed from the dead hand of zombidom the private sector could get back to work.

Give it a whirl. Let us know how it works out.

Bill Bonner
The Daily Reckoning

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).

http://www.lewrockwell.com

    © 2011 Copyright The Daily Reckoning, Bill Bonner - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

darren
25 Sep 11, 07:57
Bill so when is DJIA 6000 going to happen ?

Hi Bill, you mnetioned in previous article that the DJIA has the potential to drop to 6000pts, when do you think this is likely , given the current turmoil in US and Europe ?

Analysts like Nadeem Walyat suggest this will be a bull market and we will seee dow 12/13K by years end ?

Your thoughts

regards


BILL BONER
26 Sep 11, 13:45
WHEN?

Timing is imposible to predict, if I could predict the timing do you think I would be writing these articles? No, I would be investing borrowed money and leverage it to the max. I make a living writing articles, write or wrong, the pay is the same. I put my pants on one leg at a time, just like you, I hope.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in