Daily Reckoning editor Bill Bonner says everything is going according to plan. An unsustainable credit-fuelled boom popped. And businesses, consumers and financial markets are left reeling. Bill says US stocks could fall much further before stabilising at a ‘normal’ level. Meanwhile, reckless money printing by the Fed will eventually take down the dollar, and light a fire a fire under gold prices.

More from Bill:

What MUST happen DOES happen. Sometime it takes longer than you expect. And often it doesn’t happen exactly the way you expect. But it is a relief to know that gravity still works… what goes up still comes down. ‘Regression to the mean’ is another old law still in force; when things become extraordinary, you can bet they will go back to normal sooner or later.

But what does this mean for stocks? And what about gold? The dollar?

Hey, you’re asking a lot from a free publication. But what the heck… we’ll make some guesses and remind the reader that he is likely to get no more than he paid for:

Stocks typically regress to the mean, along with everything else. The ‘mean,’ depending on how you measure it, would put the Dow between 6,000 and 9,000. But Mr. Market can be a devilish fellow. He usually causes stock prices to regress beyond the mean, before he lets go of them. This could take the Dow down to 5,000… perhaps to 3,000… before it finally reaches a bottom.

And before we make guesses about gold and the dollar, we will tell you another thing that MUST happen.

Fish gotta swim. Birds gotta fly. And the feds gotta try to pump more liquidity into the system. All over the world, government officials are taking command of the situation. Well, they are taking command of banks… of trillions of dollars worth of bailout funds… interest rates… and financial rules.

Yesterday [Thursday], for example, Japan announced that it would spend 5 trillion yen, about $273 billion, in a “stimulus” package. Also, the Bank of Japan told the world that it, too, was cutting rates. This news came as a surprise to us. We didn’t think Japan had any rates left to cut. But the BOJ nevertheless announced that it would shave the short stump of its main rate down to 0.3% and that henceforth it would make commercial loans at 0.5%.

By contrast, the US Fed still has 100 basis points to work with. And the US Congress is said to be planning another stimulus package of its own – surely wrapped in bright Christmas paper. The price tag might be another $400 billion, according to our sources.

Not only are the feds trying to bail out the US economy, they’re also lending $120 billion to a group of foreign countries in order to help them swap their currencies for dollars. At least, that’s what it says in the paper… the actual transaction is a mystery to us.

The Russians are bailing out their own rich people. At least they’ve got some real money to work with – a fund of $200 billion. And the IMF has pledged to lend $100 billion to wherever it is needed.

You can also count on more rate cuts… trillion-dollar deficits… show trials… giveaways… and grandstanding. There will no doubt also be a “jubilee” movement – demanding forgiveness of debt.

The big questions are when and how will these things affect the feds’ ability to borrow? We don’t know the answer… but we have watched Treasury yields rising ominously over the last few days. That could be a sign that the worst is over for the economy. Or, it could be a sign that lenders are worried about US public finances.

If the world economy continues to weaken… and turns into the FWD (First World Depression), as we think it will… none of these measures will do any good. Finally, the US government will run out of credit, out of money, out of time, and out of luck.

Then, the Bank of Ben Bernanke will do what it has promised to do: it will print money. And when that happens… or even when investors begin to suspect that it might happen… the dollar will collapse and gold will rise.

Source: Everything Is Happening As It Should