Time For a Real Cure.

by Larry Levin

The following essay is by Bill Bonner.

They're wrong. We're right.

Now The Wall Street Journal says, "recovery likely in second half."

And Goldman Sachs calls for a stock market rally similar to the rally in 1982.

Who are we to say they are wrong?

Well...we're The Daily Reckoning, that's who. And we'll say it: they're wrong.

This 'recession' is already the second longest since the first leg down of the Great Depression. That downturn of the early '30s went on for 43 months. This one is now at 19 months - officially - which makes it longer than any other since the Great Depression.

Is it over? Is it going away? Is that all there is?

Nope. Nope. Nope.

Instead, we are merely proceeding as we should, into a "deepening structural depression," as John Williams puts it.

Yes, he uses the 'D' word too. Because a 'D' is what we have. Not an 'R'.

It's a depression because it requires major structural change. A recession only requires time. And not even much time...just a few months to work down inventories. But a depression takes a lot of time...to restructure industries and rebuild balance sheets. Debt needs to be paid down - or inflated away. And businesses need to redirect their efforts towards a more profitable line of activity.

Both the increase in unemployment and the slump in industrial production are worst than at any time since 1945. As for retail sales and housing starts, they're the worst in the post-war record books.

The figures tell us that something important is going on. But what's the key to understanding what it is? And how will it be cured?

This key is to understand that this is a major structural depression. It can't be cured by more stimulus, because stimulus is what caused it.

This time, we need a real cure...bankruptcies, workouts, deflation, defaults...and maybe, eventually, hyperinflation.

None of those things happen easily or quickly. Businesses don't want to go bust. Families don't want to lose their houses. So if they get a lifeline from the feds, they grab it and hold on. And the longer they hold on, the longer it takes to make the structural changes that the economy needs.

The length of time spent in unemployment is now longest since 1948. And consumer debt, at only 12% in 1982, is now at 18% of GDP. "With that kind of debt, there is no question that the feds will implement a tight money policy," said Marc Faber in his speech here in Vancouver yesterday. Instead, look for easier...and easier...money policies, he says.

We learned that the feds have put up an amount equal to more than 150% to GDP to bailing out Wall Street: $23 trillion. No wonder Goldman is reporting record bonuses!

"We have to spend money to keep from going broke," says Joe Biden, a man who is out of his depth in the bathtub.

But when you've got that kind of money covering your mistakes...how much restructuring are you going to do? Not much.

"Wall Street Learned Nothing," is a headline at Forbes, making the obvious point.

The feds still believe in stimulus. And Wall Street still smiles and takes it. That's why the recovery is still a long way off. Now, the feds are in charge of the money...and in charge of key industries, including automobiles, banking, insurance...and soon, healthcare. They'll block innovation. They'll prop up ailing institutions. They'll provide more and more stimulus.

A growing group of analysts and strategists now calls for another big stimulus package. You see, the current stimulus program hasn't worked. Why not? Well, because it was not enough...or not properly focused, say economists. In either case, the solution is not hard to figure out. Even Nouriel Roubini says, "More stimulus is needed."

So more stimulus is what we will have...and a collapsing economy...and a falling dollar...and more!



Previous Day's Trading Room Results:

Trade Date: 7/22/09

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 8:50am at 951.00 = -.50 (1 lot)

2) 80% sell @ 9:50am at 951.00 = b/e (1 lot)

3) FT buy @ 12:20pm at 953.50 = -.25 (1 lot)

4) IDVA sell @ 1:00pm at 954.00 = +1.50 & +2.75 (2 lot)

5) OTF sell @ 2:00pm at 954.00 = +.25 & +3.25 (2 lot)

6) Algorithm positions (10)

7) "Reading the Tape" positions (7) ...combined Secret's, Algo, & "Reading the Tape" total...+14.25


Electronic (YM) Mini-Dow:

1) None today



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