The Great Depression Online

Great Depression Online Archive Issue:


Great Depression Online
Long Beach, CA
July 17, 2009

Inside This Issue You Will Discover…

*** Asset Bubble Consumer Credit Binge: R.I.P.
*** The ‘New Normal
*** Hallelujah!
*** And More

“In God We Trust: All Others Pay Cash” – Jean Sheperd

Asset Bubble Consumer Credit Binge: R.I.P.

The economic growth model of rising asset prices and credit based consumption is dead.  In other words, the world as we’ve known it for the last quarter century is over…finished…and done.

We don’t fight it.  Nor are we disheartened by it.  For when one door closes…another door opens.

Plus we don’t think we’ll miss the asset bubble consumer credit binge economy anyway.  It never made much sense to us to begin with…

…people using credit cards to buy $4 coffees in paper cups.

…high school kids driving European luxury cars.

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…house prices that doubled, and then doubled again; with median income earners lining up to buy them like funnel cakes at the county fair.

…millionaires next door…affluence…granite counter tops…condos in Vale Colorado…lofts in Vegas…The Ritz-Carlton.

…DOW 36,000…day traders…condo flippers…loan brokers…futures speculators…gamblers – all getting rich, all living the more abundant life.

…the profusion of so called high rollers…Dennis Rodman…the celebration of excess…of living la vida loca.

If that’s what we’re leaving behind, than good riddance.  Asset Bubble Consumer Credit Binge: R.I.P. 

The ‘New Normal

PIMCO founder and Bond King, Bill Gross, in his July Investment Outlook, explained how the old economic model worked…

“U.S. and many global consumers gorged themselves on Big Macs of all varieties: burgers to be sure, but also McHouses, McHummers, and McFlatscreens, all financed with excessive amounts of McCredit created under the mistaken assumption that the asset prices securitizing them could never go down.  What a colossal McStake that turned out to be.”

Yet now that the asset bubble’s burst the lunkheads in Washington are doing everything they can to pump it back up.  For in their shortsighted view this will get things back to normal in time for the next election.  This, of course, is what everyone wants.

But there will be no going back…

“With financial markets seemingly calmed and an inventory-based recovery in store for the balance of 2009,” said Gross, “there is a developing optimism that we can go back to the lifestyle of yesteryear.  PIMCO’s driving thesis however, if not a juxtaposition, is succinctly described as a ‘new normal’ where growth is slower, profit margins are narrower, and asset returns are smaller than in decades past based upon the delevering and reregulating of the global economy, which in turn should substantially inhibit the “gorging” of goods and services that we grew used to in decades past.”


In the ‘new normal’ outlined by Gross, asset prices won’t bubble up every several years as they have been.  You won’t be able to ‘buy and hold’ an index fund and watch it rise 30-percent year after year.  And building massive home ‘equity’ just by living in a house for a year or two…that you can cash out to buy stuff with…won’t happen again any time soon.  

In the new normal, the conventional wisdom of the last quarter will result in a quick trip to the poor house.  The idea that you can get something for nothing, or that the more you spend the wealthier you become, will be limited to spendthrifts and wastrels or idiots and morons…rather than the general population.

Consequently, honesty, hard work, saving, and modest forbearance will be virtues that are rewarded.

“Greed will come again,” said Gross.  “But for now, the trend is the other way and it promises to persist for a generation at a minimum.”



M.N. Gordon
Great Depression Online

P.S.  Have you been watching the stock market this week?  The DOW’s up 565 points over the last four days.  Perhaps, Glassman and Hassett were right and the DOW is going to 36,000.  We doubt it.  But that doesn’t mean you can’t still make money in stocks.  You just have to be much smarter about it.  Rather than price appreciation, a portfolio loaded with high-yielding dividend paying stocks may be the way to go.  Discover the “Dividend Optimizer” portfolio here.


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