The Great Depression Online




Great Depression Online Archive Issue:

When Everyman was Donald Trump

Great Depression Online
Long Beach, CA
September 10, 2010

Inside This Issue You Will Discover…

*** Stimulus Redux
*** Giving Bathtub Hooch to a Dipsomaniac
*** When Everyman was Donald Trump
*** And More

Stimulus Redux

Those doggone signs.  They’re everywhere we look.  What’s more, now there could be even more of them.

While those fortunate few who still have jobs were enjoying a day off from their labors on Monday, the President announced to a gathering of union members at the Milwaukee Laborfest that he’d be using the future revenue of unborn taxpayers to buy more signs that say Project Funded by the American Recovery and Reinvestment Act. 

Here are the particulars, as reported by the New York Times…

“President Obama, looking to stimulate a sluggish economy and create jobs, called Monday for Congress to approve major upgrades to the nation’s roads, rail lines and runways — part of a six-year plan that would cost tens of billions of dollars and create a government-run bank to finance innovative transportation projects.

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Today more and more investors are warming to the fact that psychology moves markets and therefore fundamental analysis, which fails to properly measure mass investor psychology, must be flawed.  Who can blame them?  After all, fundamental analysis -- based on past company earnings, rating agency projections and the like -- proved to be of little value during the bust.

There is a better way.

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~~~~~~~~~~~~~~~~~~~~~~~~~

“With Democrats facing an increasingly bleak midterm election season, Mr. Obama used a speech at a union gathering on Labor Day, the traditional start of the campaign season, to outline his plan.  It calls for a quick infusion of $50 billion in government spending that White House officials said could spur job growth as early as next year — if Congress approves.”

Nearly three years into this mess and the President still wants to “fix” the economy with more government spending.  Just what we need another government run bank.

Giving Bathtub Hooch to a Dipsomaniac

You’ve likely heard the old Albert Einstein saying: The definition of insanity is doing the same thing over and over again and expecting different results.  By this characterization…the President’s insane.

Unless, just maybe, perchance, since the initial $800 billion stimulus did less than a hair on a horse’s ass for the economy, somehow throwing another $50 billion into infrastructure will be just the silver bullet the economy needs to really get things galloping along.

We think otherwise. 

The whole economy must be rebaselined.  Jobs, incomes, wages, trade, stocks, houses, dollars, debt…the whole shebang.  It all must be liquidated so the quick, the ingenious, the savvy, and the well-meaning hustlers can restructure the economy so that it thrives, and hums, and hops along.

Borrowing more money into existence and pouring it into infrastructure will only stretch out the economy’s fall from a swift decline to a slow, indolent, lethargic, recline.  It’s like giving bathtub hooch to a dipsomaniac – only worse.  If the brain trust keeps it up we could be living through another 20-years of this – or more.   

When Everyman was Donald Trump

The ingredients were baked into the economic cake long before the 2008 financial crisis.  Following the tech-wreck, Alan Greenspan dropped the federal funds rate to below the rate of inflation and held it there for several years.  In other words, he lent money to banks for less than free.

The banks only did what they were supposed to do.  They borrowed more money than the economy could support and lent it out to anyone with a pulse.  The popular delusion of the day just happened to be houses.

Everyone loved Greenspan for the boom he induced.  Why bother to ask where the money was coming from when you’re getting rich…or at least you think you are.  Bob Woodward even wrote a biography about the incomprehensible mumbler, calling him the maestro. 

Everyman was Donald Trump.  And those who weren’t were just dorks and squares.  Didn’t they understand how simple it was to attain a life of wealth and luxury?

But then something totally unexpected, unwitting, and extraordinary happened.  Housing prices didn’t go up…they went down.  Then the millionaire next door lost his job and could no longer afford the seadoos.  After that, the nation, in mass, stopped spending, and began saving and paying down debt.

Yet the government keeps spending like a Santa Monica trophy wife.

The simple fact is that there’s no historical precedent to support the notion that massive government stimulus can achieve economic productivity.  It was attempted during the Great Depression and it has been attempted in Japan for the last 20-years.  In both instances it failed.

Regardless, we’ll give it another shot.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Past performance is not indicative of future results -- and that’s where fundamental analysis goes wrong.  It fails to factor in the psychology that not only moves markets up and down but also leads analysts to extrapolate the current or past trend into the future.  That’s why fundamental analysts almost always miss major tops and bottoms.

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