The Great Depression Online

Great Depression Online Archive Issue:

Enjoy the Ride

Great Depression Online
Long Beach, CA
February 27, 2009

Inside This Issue You Will Discover…

*** “We Are Not Quitters”
*** A $1.75 Trillion Budget Deficit
*** Enjoy the Ride
*** And More

“We Are Not Quitters”

The manic stock market took a break from its despair on Tuesday.  The DOW bounced up 236 points to close the day at 7,350. 

But that was before Tuesday night when President Obama told the nation that “we are not quitters.”  Subsequently, on Wednesday, the DOW gave back 80 points…followed by another 88 points on Thursday.

Tuesday’s rally came following Federal Reserve Chairman Ben Bernanke’s address to the Senate Banking Committee, where he stated, “there is a reasonable prospect that the recession will end this year,” provided that the credit markets and financial markets operate “normally.”

~~~~~~The Money Vault~~~~~~

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Of course Bernanke doesn’t really know any more than the rest of us where the economy’s going.  In fact, last June, at the International Monetary Conference in Barcelona, Spain, he stated that, “We may see somewhat better economic conditions during the second half of 2008, reflecting the effects of monetary and fiscal stimulus, reduced drag from residential construction, further progress in the repair of financial and credit markets, and still solid demand from abroad.”

Regrettably, the economic conditions during the second half of 2008 weren’t somewhat better…rather, they were a whole lot worse.

A $1.75 Trillion Budget Deficit

President Obama released details of his 2009 budget yesterday…including steps toward universal health care and higher taxes on the wealthy.  A $1.75 trillion budget deficit is required to cover the cost of it all, which amounts to 12.3 percent of GDP.

Historically, when a nation runs a budget deficit in excess of 6 percent of GDP foreign investors become anxious, and the country’s currency becomes stressed.  And sometimes, if foreign investors get too anxious, they sell in mass resulting in a rapid devaluation.

For example, in 1994 Mexico was running a deficit that was 7-percent of GDP.  Everything was wonderful, until suddenly it wasn’t.  One day, late in the year, foreign investors panicked.  They dumped their holdings and the peso crashed in spectacular fashion.  In the space of one week the peso fell 44-percent against the dollar.  Mexico’s economy crashed too.

Argentina got into some trouble at the turn of the 21st century too.  In 1999 Argentina’s GDP dropped 4 percent and the country entered a recession.  The country’s public debt had grown throughout the 1990s and, as GDP dropped, foreign investors began to fear that they wouldn’t be able to pay it back.  A flight of money away from the country followed in 2001.  To salvage what wealth they had, the locals began withdrawing large sums of money from their bank accounts, converting them to dollars, and sending them to the U.S.  Then the government froze their bank accounts.  And next the economy collapsed completely.

Enjoy the Ride

While the United States will be afforded more leniency with its creditors – namely China and Japan – than Mexico and Argentina were with theirs, a budget deficit of 12.3 percent of GDP is not without consequences.  Sometime in the next six to eighteen months price inflation will return.  At first it will be greeted as a welcomed signal that we’ve beat deflation.  Then it will be loathed as it wrecks havoc on the unemployed, the wage earner, the saver, and the fixed income retire.

In short, the $1.75 trillion budget deficit is money we’re spending that we don’t have.  To put this in perspective, $1.75 trillion represents…

…$4.8 billion per day.

…$200 million per hour.

…$3.3 million per minute.

…$55,000 per second.

What does this mean?

It means we are going broke with rapid enthusiasm…at a rate of $55,492.13 per second to be exact.  Our advice?

Enjoy the ride.  For it’s going to hell in a handbasket.


M.N. Gordon
Great Depression Online

P.S.  If you feel comfortable following the herd using the same failed strategies that have allowed folks to watch their life savings vaporize, then don’t read further.  But if you’d like a former Wall Street Insider to reveal secret information that has always been under lock and key…information that gives you the combination to the vault that will unlock wealth like you won’t believe, then take five minutes and read this free report: The Money Vault


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