May 19, 2009

Recovery: V, W, VL, L or U?

You know my take (and disagree with it pretty overwhelmingly) - the Great Recession is over.

I firmly believe that massive government spending, 0% interest rates and a tax cut have done what they always do - they pull you out of a recession. So in six months or so, you'll hear that the Great Recession ended in May 2009.

Fine. It hath been foretold. Yada yada yada. Econ 101 folks.

Now, the BIG question shouldn't be IF the Great Recession ended. It did. Go with me on that one (even if you disagree).

No, the BIG question is do we see a V or do we see a W? Or, worse case, do we see a VL?

We got the shot of Adrenalin to the heart. It's doing what it always does. But do we get right back up, dust ourselves off, and get on with things? Or do we get back up, dust ourselves off, and then collapse?

Also, the US is just one country of many in a heap of sh*t. The UK will likely see a U. The EU I'm thinking will be seeing a real long L. China feels like a W. Russia, Brazil and the oil producers a V.


eric in vegas said...

It's going to be an L. No doubt about it.

yoski said...

Over the next 20 years inflation adjusted incomes are probably going to fall about 50% in the US to reach an equilibrium with the rest of the world, in particular China. Like with any Ponzi scheme, it will do fine as long as you have enough suckers buying into it. It should be clear even to the dumb and greedy that the US will not make good on their promise to redeem future obligations with fair dollars (treasuries, social security, etc.). We either have severe money printing or forced default/cram downs like those happening to GM & Chrysler bond (bag) holders.
Once the supply of suckers slows to a trickle it will become increasingly difficult to run deficits north of 10% GDP. Ponzi schemes tend to collapse very suddenly when the supply of suckers is exhausted. When the day of reckoning will arrive is hard to say but I doubt the supply of suckers is infinite. China certainly caught on a few month ago. They are spending their dollar surplus on infrastructure and commodities instead of IOUs.

duarte said...

If it's any form of L, the recession isn't over. There is no simple equation for measuring the recession when you make your calculations without factoring in the money supply. Printing money worked before only because the reserve currency status of the dollar wasn't in danger. Who gets the money? Who has gotten the money, yet? Remember the definition of inflation being a factor of the money supply times the velocity of money? The velocity of the dollar is dog slow. It will continue to slow because of the inevitability of long term asset paper unwinding. Watch China not match the Fed's actions with equal deficit spending - even if their people are screaming for food. They will feel teh pain sooner and recover sooner. The US will continue to RECEDE while other nations climb out of bed. Peter Schiff,, and even were singing the song long before you, K. Bow down and kiss their ring. Maybe they'll throw you some pearls of wisdom. FDR made the Depression last longer. The Obama Printing Press will do the same.

Bukko_in_Australia said...

I am in the permabear camp, because I see the fundamental flaws in the debt-based U.S. kleptoconomy. However, one of the reasons I read econoblogs is because I'm not so hubristic as to think I know everything. I had expected a massive collapse of the U.S. economy and rejection of the dollar two years ago, and I was wrong on that. So my mind is open to persuasion.

As you say, a couple of trillion dollars of stimulus is bound to do SOMETHING. But exactly how? The trillions that have been given directly to banks, or laundered indirectly to them through AIG -- how has that made it into anyone's pockets except the top-level billionaire bankmaggot friends of Hank and Timmer? Even if there were 100,000 maggots who were getting bonus payments of $100,000 or more, how many Maybachs and caviar burgers can they buy?

Are banks going to make more loans to people who are flat broke and in debt up to their eyebrows? Are they going to loan to homebuilders so they can hire people to build overpriced houses that no one can afford? Are GM and Chrysler and the Cheesecake Factory going to be adding extra shifts?

I don't think so. While the stimulus money might be like a shot of steroids for the economy, steroids wear off. I'm with Mish in thinking that a secular change has occurred in the American public. The ones who have hit desperation, like the 15% unemployed and an equal number fearing the same thing, are going to pull back. For a long time, unless they're totally stupid.

America CAN bounce back, if it revamps its economic paradigm the way it did with the auto age, airplane age. age of plastics and computer age. I'm thinking a green economy, with all sorts of new products made in U.S. factories, and workers who will install solar panels on peoples' rooftops, and farmers planting trees to scrub CO2 from the air...

The trouble is, no one is going that way. They won't, until the current economic pattern crashes and burns.

So Keith, I'm with ya on the fact that the stimulus will stop the free-fall. But unless there's a major change in how things are done, the old way won't work. And despite my initial optimism that Hopey might actually start doing things different, I'm now pessimistic. But I've got lots of popcorn. I hope to last until the second reel starts playing.

keith said...

I don't see how we ever get back to where we were in 2004 - 2006, when Goldman was 30 to 1 leveraged, when anyone could get $1 million in home loans, when everyone was taking out home equity to buy stuff, etc.

But with big daddy government now picking up the slack, plus 0% interest rates, plus mortgage rates being driven down so people's payments are dropping (thus freeing up some spending or saving room), I see a short-term gain.

It's 2012 and beyond that should be interesting. Thus the WL or VL concern.

And the dollar? It's getting creamed again, even against contracting economies like the UK and EU.

Anonymous said...


yoski said...

Keith:"It's 2012 and beyond that should be interesting. "
Yes, the question is if the Obama team can keep the gravy train from derailing until the next election. They will do everthing in their power trying to achieve that goal. They will borrow everything that can be borrowed, they will print as much as can be printed, they will cook the numbers as much as they can be cooked, they will sacrifice the reserve currency status of the dollar, they will bailout everything and everybody. Sadly there're not only postponing the inevitable, but thay are making it much worse when the day of reckoning finally arrives.

Bukko: "America CAN bounce back, if it revamps its economic paradigm the way it did with the auto age, airplane age. age of plastics and computer age. I'm thinking a green economy, with all sorts of new products made in U.S. factories,..."
CAN but won't because it would require throwing some/most campaign contributors under the bus. China doesn't have to worry about campaign contributors, that's one descisive advantage they have.

Stu said...

Keith this is a very good question with many answers which could all end up being correct in my opinion. I was of the ilk that this will be a classic “L” shaped recession with a lost decade scenario similar to what Japan experienced. I have changed my view slightly however due to massive Government intervention. I now see this as more of a “W” recession which then turns into an “L” shaped afterwards. So a “WL” recession is what I am calling for. Please allow me to explain…

We have experienced the first leg down on the “W”. Massive manipulation of interest rates and Government sponsored bailouts will allow for things to falsely go up short term (the first leg of the “W” up which is where we are at right now). For financial reasons the Government will have to slow down or even stop this massive manipulation and the bailouts and I see that coming this summer sometime (that will be the second leg down in the “W”). The already approved bailout funds on hold will be released towards the end of the summer and into the winter which will re-kick start things a tad (the final leg up). Then we hit 2010 and with it will come the massive overhang of CRE and resets will begin to blossom. This along with massive bank implosions, states needing bailouts, and tax revenues continuing to decline all well into 2010 (this will cause the final and fatal last leg down and entry in the “L” recession phase). We will nose dive in most if not all of 2010 and no sight of a recovery will be seen at this point. The Government will be out of money and unable to sell debt and we will not be able to afford to print any additional money due to inflation now creeping in as a result of the manipulation from the past 3 years or so. Then we eventually hit the floor or the final leg of the “WL” recession and it will be prolonged and dire in nature. This is when we see despondency and depression set in on your chart. I see a very small recovery beginning in 2012 at some point but not anything that will pull us out of it, but rather small blips on the radar. We will bump up and down for years with 1%-3% growth at best and with inflation running higher than this, real wages will continue to fall. I sense the standard of living will fall substantially for all classes of society during this period and we all fall backwards slowly until debt is wrung from the markets and budgets are balanced in households, businesses and the all facets of Government. What would have occurred naturally without the massive Government involvement in our markets and been at a much cheaper cost to America.

The recovery will take many years to occur but when we do come out of it (my guess is 2017 or so) we will be much better off as a country and society. Credit will not be easy to get and strict limits will be in place. Our savings rate will be much higher than it has been (10% or even higher perhaps?) as a nation. Our Government will be much smaller which will be a good thing. Our services will be much smaller and we will be forced to take care of our own more which is also a good thing. A new generation of frugal, saving, prudent and responsible children will be entering the work force and starting to influence how society moves forward. Stay home moms will be back in vogue as will small business. Our landscape will be altered forever with tens of thousands of empty buildings all around the country. A renewed push for affordable homes in place of the big homes of today will arrive. Home schooling will become more prevalent and parents will no longer be driving their kids all over the place for sports and other activities because they will all decrease due to cost. Family time, parks, beaches, etc. will be where and how families spend their time. I even see vacations becoming predominately domestic in nature. A massive pull back by everyone in this country is occurring now and will continue to occur. Our country will look more like it did in the 70’s vs. today would be my guess…

This is my take on things anyway… we have so much further to go still Keith!

Ausie said...

Another place where truth will be recognized as we humans mature and evolve.

If Briton was to fall off the face of our planet there would be zero impact to the rest of the world.

If tiny Israel was to fall off the face of our planet all of civilization would be severely damaged.

casey said...

what recession.People have never let up here in california.Party still going here.

Anonymous said...

I think yoski hits it pretty well, inflation adjusted incomes are going to drop pretty far to meet the world in the middle.

It depends what metric you use to determine the shape of the graph. GDP has been falsely inflated for a number of years by the housing bubble.

Home prices as a metric will likely stabilize in the next couple of years, as inflation works its magic.

To plan for this future, it's best to get involved with exports. Make a product or service that can be sold to people that don't deal in dollars or pounds.

Ross said...

I can't get this quote out of my head when we start talking about Vs and Ls and Ws.

"If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless." - Thomas Jefferson

Anonymous said...

what do you see in the US keith?

a V or VL?

Anonymous said...

"Peter Schiff,, and even were singing the song long before you,"

they provide facts and numbers to support their conclusions.

keith reads there opinions and tries to pass it off as his on.

Mike Hunt said...

How about an "O" shaped recovery for the foolmeister in chief President Obama?

We are now climbing up the left side of the O, thinking Green shoots and unicorns- soon we are level at the top of the O followed by a free fall.

Then we go backwards at the bottom of the O and then back to climbing up again, only we are all much poorer.

Get it?


Anonymous said...

here in the US, there are still a few more "shoes to drop". Commercial real estate is just entering into this recession. That sector is usually the "last going into" and the "last coming out of" a recession. Don't make the mistake of measuring where we are by just looking at the the Dow Jones Sucker's Average.

Smug Bastard

Mammoth said...

Recovery? All we did - with the massive stimulus & bailouts - is kick the can a little further down the road.

And the next time we try to kick that can (i.e. the economy), it will feel like it is filled with cement, and will barely budge.


Yak said...

VL, and here's why. The Democrats won big in '08 and they will do what they have to to protect their majorities. Massive deficit spending, unprecedented government intervention in the once free markets, and thuggish regulation are their tools. The combination will get them through the midterm elections of 2010 and they will be hailed as saviors of the economy (the upstroke of the V).

Reality returns in 2011, "L" time...

Anonymous said...

In my city of 120k people any given month for the past year there are $6-8 million dollars a month floating around restaraunts and such that should not be there.

$6-8 mil. each month from folks not paying their mortgage.

And consumer spending is still way, way down. What happemes when those people have to start paying rent?

GT Charlie

Jasen said...

Though I reckon you market types are referring to the shape of a graph, like GDP, do you have a lowly wikipedia entry the undereducated may read.

I will tell you that Capitol Hill is very interested in getting on with business as usual. The banks are now solvent, regulation what and what for- everything is fine now, problem solved? correct the poor thinking of families and family finance that hasn't really improved since the 1970's but pays much more, and on credit? what are you, a communist?

Tyrone said...

Have you factored in the 'elephant in the room'? Does ECON 101 account for derivatives? Can it handle the $500T BOMB?

I don't have the answers; I'm just askin'.

keith said...

Mammoth - you are EXACTLY correct - we've just kicked the can down the road.

Same thing we did in 2001 after the dot-com collapse, and look at what did for us.

So, knowing what we've done, I don't understand why most of you disagree with me - that this CURRENT recession will now end, and the FUTURE recession or depression may be even worse.

For the US I see a V short term. But then I honestly don't know. I don't see how we get back to where we were without massive government stimulus - as in once that dries up or once Bernanke has to start raising rates.

So I'm in the VL or W camp until someone can make a case on how the US can have a sustainable economy not reliant on housing, debt or stock market loot.

Science, the internet, green energy transition or the explosion of China, Brazil and India as consumer markets may be holy grails. We'll see. And slashing future entitlements is a must.

Pay Lay Ale said...

Since when does the massive printing of money acutally increase productivity and/or increase an economy's productive capacity?

Autos are a huge part of the US economy and that's in shambles. Construction is a huge part of the economy, and it's in shambles because we're overbuilt both with commercial and residential real estate. Retail and restaurants are even more overbuilt than residential real estate.

What part of the economy is going to make up for autos, construction, and retail?

Tech? Health care? Don't see it happening, esp. if Health Care is nationalized.

Anonymous said...

The WL or WWWWWWWWL recovery is probably spot on. In the end, our standard of living will be permanently diminished, but it should be a very intesting roller coaster ride before we get there, as the smart money fleeces the sheeple for every last cent.

Miss Goldbug said...

Nothing else but an L.

The end of prosperity is now. Pay and living standards going back to the 1970's.

Dollar is plumeting.

Could it be, the reason gold hasnt skyrocketed is because government is manipulating the price to keep it down in preparation of returning to the gold standard within the next few years?

Does government already realize banks won't be able to sell enough of those coverted stock to help them?

Are stock conversions the banks last hope to raise cash?

I wish I had a crystal ball to see into the future.

moretroops said...

Whatever the shape of the recovery, assuming there is one, it won't be as awful as W. Europe:

Good times!

Anonymous said...

Ausie said:
‘If Briton was to fall off the face of our planet there would be zero impact to the rest of the world.’

Wouldn’t - Scotland, Ireland, Canada, Australia and whatever other foreign places they still rape be truly independent and sovereign?

Stuck in So Pa said...

The big \ Keith! (That's downward slide with no foreseeable bottom)

My "Google Alerts" is bringing in daily email reports from all corners that, like you say, the worst is over, and it’s up and away from here.

Unfortunately, all the "experts" forgot that the BIGGEST wave, the option arms and adjustable, are due to hit shore in 2010-11, and they are waaaaaaaay bigger than sub prime.

Commercial real estate is also continuing its downward slide into oblivion, with late on payments, and foreclosures increasing viciously.

SIDE NOTE: I just got an email from the FDIC. They are auctioning off the contents of IndyMac as we speak. Any sashers out in Pomona Ca should stop in a take a look at the goodies.

casey said...

Business is booming in healthcare.People are dieing to get in.Hopefully you dont become ill because those crooks will drain your life savings within a month.Work your ass off your whole life and hand it over to the crooked healthcare industry.Isn't life great.

Anonymous said...

backwards Z rotated 90 degrees if nothing changes.

i've had it said...

In Biblical times there were lots of "seven years of prosperity and seven years of famine". A cycle driven by the climate and how it shifted periodically. The prosperity years were ones where there was lots of rain; the famine years where there were droughts.

The same is true, it would appear, in modern economies: seven to ten years of good times (the bubble) and then seven to ten years of bad times (the crash and burn)...

I think this is a ten year-er or more in the crash and burn cycle. And we are in the middle of the first year...

Anonymous said...

It started with the all too familiar F, then sharply turned to a U, followed by an unsurprising C, then to the much feared K, now many believe we are headed to an E, which in all likelihood will end in the mother of all shit storms known as D.

F-U-C-K-E-D, my friends.

Angryu Leprechuan said...

Keith said:

I don't see how we ever get back to where we were in 2004 - 2006, when Goldman was 30 to 1 leveraged, when anyone could get $1 million in home loans, when everyone was taking out home equity to buy stuff, etc.

But with big daddy government now picking up the slack, plus 0% interest rates, plus mortgage rates being driven down so people's payments are dropping (thus freeing up some spending or saving room), I see a short-term gain.

It's 2012 and beyond that should be interesting. Thus the WL or VL concern.

And the dollar? It's getting creamed again, even against contracting economies like the UK and EU.

So you are saying we should ignore all the bullshit from yesterday?

Angry Leprechaun said...

"The WL or WWWWWWWWL recovery is probably spot on."

if you think about it, this is where we have been for awhile. Thise peaks and valleys have different hights and lows, but the Gov has always manipulated through regulation. Always! Regulation,no deregulate, no regulate and on and on and on with different verbage. This is why hands down when people argue it was deregulation that got us into this mess they are wrong. Weather to deregulate or regulate is not the question. It is the same, it is regulation. The lowering or raising of standards is a different question. So this is why I am so quick to say, "STFU" when people say we need more government regulation. No we need the gov to get the fuck out.

This time something feels different. Something is wrong to a high degree. Maybe it is because I am 31 and these kinds of econimic dowturns have never affected me the way this one is.

One thing is for sure. This type of life support is killing us and whether it is Clinton, Bush, Obama, Reid, Pelosi, etc, trying to keep this thing alive the bigger chance we have at dying.

We have been stuck in WWWWW for a long time. L may have been avoidable if we wised up 10 years ago and worked to pay shit back. Instead we kept financing and regulating and manipiulating. L is now more probable than ever. Now I think it is inevitable and we cannot fix this. One year ago if the gov stepped out and admitted they had no clue what they were doing maybe. When Obama came into office very unlikely. After Obama's first 100 days. Not a chance in hell!

Anonymous said...

L and the bottom part of the L will last for a couple of decades for the stock market.

I am not convinced we are at the bottom yet.

December 2008

Anonymous said...

It's an "I."

Anonymous said...

I predict an FU recovery. Either that or an ESAD recovery.

JaneZ said...

What difference does it make which letter? For all practical purposes (that would be "little people" purposes), the state of the economy is not going to change a damn thing that is in store for Main Stream America. There will not be a return to the BIG CASINO. Ever. It's over.

They don't care about you.


JAWS said...

If we look at the Credit Suisse Reset Chart, it's a WL, the L beginning the first quarter of '12.

The 90's recession was claimed "over" in '94 then real estate bit the dust again till '98.
February '98, housing went up 5% and buyers were still rubbing the snot out of their eyes from their deep slumber. After 9 years of falling, the race was on.

Option Arms and Alt-A's will be the second land mine to explode.
Unfortunately, it takes a clear head to listen to how these things work and I see very few people who really get it. These have to be cleaned out before any dust can even settle.

By way of definition, the recession may be claimed "over", but the sh*t hasn't even hit the fan yet.

Anonymous said...

Wow, a lot of well reasoned comments converging on a similar view of the future. Thanks to you all. Whether we call it a VL, WL, or WWL is splitting hairs. The money bomb worked, but the effect will be short lived and the consequences severe. The open question is how long before the next leg down.

Will TPTB ever get the political backbone to stop printing and borrowing money, or will it take runaway inflation to force their hand?

Anonymous said...

Here's what the BO recovery looks like to obamatons:

WSJ -- Boly:Welch Recruiting, a Portland firm, says it has had several lawyers willing to settle for work as paralegals.

Stephen Anderson, 28, a lawyer who moved in June to Portland from Austin, says for now, he's happy being over-qualified.

He went to Boly:Welch looking for legal or temp work of any kind, and the recruiting firm ended up hiring him to be an assistant to the firm's recruiters, a job that includes answering phones, getting lunches and occasionally walking the owner's two poodles.

"I know I'm underemployed and if it bothered me more, I guess I'd do more to change it," he says.

Anonymous said...

It's an "L" with a "7" right below it.

Anonymous said...

What part of the economy is going to make up for autos, construction, and retail?
$4,000 APPL laptops and search engines. That's what the US is about now. We won't eat to trade our APPL laptops every year and to install $30,000 solar panels on our shacks.

Anonymous said...

"So, knowing what we've done, I don't understand why most of you disagree with me - that this CURRENT recession will now end"

Please, stop fking around and list the reasons why you think that the recession is over. We want solid data and charts that back your claim, so we can compare it with Mish's data.

HP profits were down 17% last Q, and the US lost its position to China in April, after leading for 80 years, as major Brazilian trading partner. The BO Adm. couldn't care less, while China called Lula and 240 Brazilian business leaders to celebrate and close new deals.

les said...

How about a \.

hp fan said...

Inverted "V" for Vendetta.

Start upward 1980 End downward 2020.

Anonymous said...

Looks like a V shape recovery for Japanese auto makers.

Looking forward it looks like Japan will have a good quarter.

Japan's new vehicles sales excluding minicars rose 15 percent in the first half of May from the same period a year earlier.

The improved production outlook at Mazda comes amid some signs of recovery in demand for the car industry.

Nissan Motor Co said on Tuesday orders for its low-emission cars are up 30 percent in Japan so far in May from the same period a year earlier

gutless and lazy said...

Anonymous May 19, 2009 10:07 PMYou nailed it. Keith knows it too, he's just trying to stir up some debate.

The free fall has stopped. Ending the crisis cost Trillions in new debt. And it has sealed the fate of the future U.S. economy - we are screwed.

The data to support the L is overwhelming.

The only data to support a historical econominc up cycle is "because that's the way it always worked in the past".

Perhaps V or W believers are confusing stock market performance with the real economy. A fatal investing mistake. At best these are short term trading opportunites. Long term holds? No way.

Any nominal uptick in economic activity will be crushed when adjusted for inflation. Not the phoney gov't inflation numbers released. The real inflation numbers.

gutless and lazy said...

Here comes the state bankruptcies:

Remember the old saying now, "All new national trends start in CA".

Can't wait for NYC to ask for another bailout .. al a 1970's.

So this is recovery????? States going BK????? CA is first.

Who's Next???? FL?? AZ?? NV ?? MI??

gutless and lazy said...

Roubini to Keith: You're a wild eyed optimist!! LOL!!

"But while the rate of economic contraction is now lower than the free fall and near-depression experienced by many economies in Q4 of 20008 and Q1 of 2009 the recent optimism that “green shoots” of recovery will lead to the recession to bottom out by the middle of this year and that recovery to potential growth will rapidly occur in 2010 appears to be grossly misplaced. "

Roubini has spoken. Case closed, debate over. Green shoots = Yellow weeds. Recovery not happening. Not now. Highly unlikely anytime in 2009. Sorry but sometimes reality sucks.

It's an L.

BigD said...

It is going to be F. As in F*ck. As in Fail. As in Fool.

Read this:
"Yet could all of this be deliberate? Could the administration's choice to tax and spend ad infinitum have been politically strategic in nature? After all, haven't both President Obama and his chief of staff Rahm Emanuel openly admitted that "the new budget is a means to altering the very architecture of American life, with government playing a much larger role than before"?
Full article:

This should pull your head out of the sand (or wherever else it might be ;-). Read it over and over again until you wrap your mind around it.

Keith, I think that essay is too important to stay buried in the comments, please consider a post on the main page...

Anonymous said...

You are so lost Keith. So lost. This shit has just begun and you think it's over. Hehehehehehe.

You crack me up dude, totally crack me up.


Anonymous said...


Just one quick question to you. Seriously.

You state that with low rates, government bailout and all this other crap, we should be out of this recession soon.

1) Is all this government spending being spent wisely in industries or companies that will create jobs?

2) Where will the jobs that will kick start the economy come from?

If the answer to 1 is NO and 2 is NOWHERE, than I FULLY disagree with you and say that the big unwind is about to happen.


Anonymous said...

Jim Rogers told CNBC that the market is yet to hit bottom:

Saul said...

I think it will look like a lightning bolt, basically going down with little spikes up occasionally to stop it from being a straight line. There is no real letter of the alphabet like that. The closest would be \ I guess. What we are in now is a temporary respite. It's already shaky.

Anonymous said...

Keith you become more erratic by the hour:-
"So, knowing what we've done, I don't understand why most of you disagree with me - that this CURRENT recession will now end, and the FUTURE recession or depression may be even worse."

So, a W or L shaped recession splits into 4 or 2 recessions depending on how many "legs" there are in the letter "W" or "L" or whatever?

So every sucker rally
(and it's subsequent inevitable correction) constitute a recession followed by a recovery?

In your mind, then, we have a WWWWWWWW recession. So therefore by your thinking, all the downturns and rebounds we saw in the Great Depression were all all just Recession/Recovery "pairs"?


Keith. It aint over till it's over. The recession is not "over", it's just going thru the normal series of upticks and pullbacks that we see in every major economic downturn.


greg said...

Stu nailed the forecast. Keith, if you read what people said as the Great Depression unfolded, we are following the script almost perfectly. After the first big fallout, people starting thinking "green shoots" the following Spring, much like you and the media. The government back then was intervening in a massive way even though our propagandist media reports otherwise (the good thing is that they didn't risk the integrity of the government itself back then, unlike now). Then the real collapse hit.

We are likely facing a new down leg, after this last burst of adrenaline enters the comatose patient, that will scare the hell out of everyone. Watch the 10 and 30 year treasury bonds, they are signaling failure in the government's ability to continue this farce.

A key outcome of this misguided policy can be seen with the current oil situation. Speculator's are driving the price up like crazy because the "chart looks good." This in spite of the fact that they are scrounging for old oil tankers to store oil because there is no available storage left, the world is swimming in oil. Consumers and businesses are going to get hit directly in the pocket book from this speculation and the air will be sucked out of this false recovery. This is just one example of how our manipulated economics leads to unintended consequences.

It will be a miracle if we can keep the economy going at the current rate. We will be fortunate if government actions don't plunge us into chaos and anarchy. If sensible people start running the show, then we are looking at a long, drawn-out decline that will only turn around after the debt is extinguished.

Think of this as following the fuzzy laws of economics. The modern world has followed this economic cycle for hundreds of years, i.e., Kondratieff wave. People go crazy into debt and collapse their economy, it is as simple as that. Government printing money will not solve the problem, it is the problem. I think we will experience a "Great Depression" shock to the economy after it becomes clear that government stimulus failed.

Somebody is going to pay big time for all the bad debt, there is no free lunch here. Trust me, this is not a rerun of the 1970s. We should find out if Stu and I are right by the end of 2010 at the latest. Good luck to us all.