The Great Depression Online

Great Depression Online Archive Issue:

Hoping for Failure

Great Depression Online
Long Beach, CA
February 03, 2009

Inside This Issue You Will Discover…

*** Dreadful, But Expected
*** Nothing Good in Front of Us
*** Hoping for Failure
*** And More

Dreadful, But Expected

The latest reports from the economic front are dreadful.  “Economy’s new plunge is worst in quarter-century,” was a headline from AP last Friday.  It was referring to the economy’s 3.8 percent decline in the fourth quarter of 2008. 

President Barack Obama called it a “continuing disaster.”  Various economists were quick to provide their analysis too. 

Richard Yamarone, from Argus Research, crunched some numbers, examined some charts and figures, and concluded that “it’s an economic hurricane.”  And Brian Bethune, with IHS Global Insight, lived up to his employer’s name with the perceptive global insight that “everybody is trying to figure out how to survive.”

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The news, while dreadful, was expected.  For it reflects an economy sliding from recession to depression.  An economy that’s decreasing…not increasing.  That’s contracting…not expanding.  That’s shrinking…not growing.  And that’s declining…not rising.

Nothing Good in Front of Us

The stock market looked the economic gloom square in the eyes and trembled and withered in fear.  In fact, it closed out the first month of the year, marking it the worst January ever.  The DOW ended the month down 8.84 percent and the S&P500 closed it out with a 8.57 percent loss.

Stu Schweitzer of J.P. Morgan offered the following synopsis: “The market is a forward-looking indicator, but the market sees nothing good in front of us.”

This reminded us of a little rule of thumb we’ve heard…the stock market looks out six months in advance.  We don’t know if this is true or not, but it sounds possible.  Following this line of reasoning, the stock market should bottom out six months in advance of the economy.

That the stock market is still going down suggest that six months from now the economy will be worse…not better.

Hoping for Failure

Perhaps the stock market, peering out six months onto the economic frontier, is witnessing a deep economic freeze.  First the credit market froze and now the economy’s icing over too.  What’s more, the government’s doing everything it can to ensure a long cold economic winter.

For example, inside the $819 billion stimulus bill – the bill that’s supposed to save the world from the horror of lower prices – is a Buy American provision.  On first take this may seem like a good idea…let’s keep America’s money in America.

The problem, however, is that many of America’s biggest customers aren’t in America; rather, they’re outside America.  And when one nation restricts trade, its trading partners inevitably respond by doubling down with trade restrictions of their own.

Suddenly there’s a trade war.

History has shown when trade is restricted the world becomes poorer…not wealthier.  But not many in Congress seem to remember that on June 17, 1930, their forerunners enacted what was supposed to be a quick fix for the economy.

Senator Reed Smoot and Representative W.C. Hawley had drafted up a tariff act that raised U.S. tariffs on over 20,000 imported goods to record levels.  Following its ratification many countries retaliated with their own increased tariffs on U.S. goods.

The results were disastrous…American exports were cut in half.  And the economy went from sluggish and lethargic to stationary and immobile.  The gears of the economic engine locked up and economic activity was effectively frozen.

Still here we are, nearly 80 years later, and the current lawmakers are busy, working on your behalf to repeat this significant and extraordinary achievement.  That they’ll likely succeed is almost guaranteed.

But we’re hoping for failure.


M.N. Gordon
Great Depression Online

P.S.  If you haven’t already, we urge you to pick up your free copy of the important and vital Emergency Report: How to Survive and Prosper in the Coming Global Depression.  Inside, bestselling authors Bill Bonner and James Dale Davidson, explain how we got into this mess, what will likely happen next and how you can protect your wealth and even prosper in the coming bad years.  Get your free copy here: Survive and Prosper in the Coming Global Depression.


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