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Message: Gold new high on Monday

"We may have to live with this "depression" for the rest of our lives."

in response to by
posted on Oct 12, 2009 02:00PM

It's beginning to look more and more like the Roosevelt years. By the end of this year, all the jobs created during the bubble era - 2002-2007 - will have been eliminated, making it the first decade with no job growth since the '30s. We're expecting a fireside chat any day.

Typically big businesses cut workers in a recession. Then, when the economy recovers, small businesses are quick to take them back. But this is unlike the typical post-war recession. This time, deprived of capital as well as customers, small businesses don't have a chance. Neither does a genuine recovery.

The authorities still do not understand what is going on. They are used to fooling most of the people most of the time. They think they can dupe them again - with bailouts and boondoggles. But real demand has vanished as households try to pay down their debt. That is not going to change anytime soon. Not while the federal government is sabotaging a genuine recovery. It's savings - capital - the US economy needs. A capitalist economy in which the capitalist have no capital won't work. Why is there no capital? Because the feds take it.

Supplying cash-for-this and cash-for-that is an expensive proposition, especially when tax receipts are falling. The money has to come from somewhere. As it turns out, the feds borrow it from the very people who are trying to rebuild their personal balance sheets. Of the $1.6 trillion the US government will borrow this year, the biggest single lender is the private sector, chipping in $700 billion. But instead of being put to use in a way that might stimulate a real recovery - providing credit for small business and consumers - it is taken up by the US government and then frittered away.

The banks are happy to play the government's game too. They can borrow overnight money from the Fed at only one quarter of 1%, annualized. But lending to small business is hard work. And it is risky. Why bother? The US Treasury will pay them 4% for lending back to the government, long term. This is practically free money to the banks. Both the bankers and politicians end up ahead - with a bigger piece of the economy under their control.

Meanwhile, the real economy staggers. "Drought of credit hampers recovery," summarizes The Wall Street Journal. The United States needs to create a million and a half new jobs each year just to keep up with population growth. Currently there are 15 million people without jobs already, and a couple hundred thousand more unemployed every month. And if this recovery continues long enough there won't be a single person left in America who still has a job.

Even if the economy could be stabilized, it will leave millions without jobs - more or less permanently. Add the people working reduced hours, and those who have been looking for work so long they are no longer counted, and their families, and you have a quarter of the population without money to spend. That's why this slump is not going away any time soon. As in Japan in the '90s, we may have to live with this depression for the rest of our lives.

Enjoy your weekend,

Oct 9, 2009
Bill Bonner
email: DR@dailyreckoning.com
website: The Daily Reckoning

Save those left-overs!

Happy Thanksgiving,

RUF

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