Government Money Won’t Make Losses Go Away
Oct 22nd, 2008 | By Bill Bonner | Category: Politics & EconomicsThe government can – and will – throw money at this crisis. But it won’t make losses go away, says Bill Bonner. At some point, someone will have to write these down. All of them. That’s why Bill sees a short-term rally in stocks, followed by another crash.
This taken from Bill’s Daily Reckoning column:
After a big boom, you get a big bust. That’s what we are seeing now.
And there is no evidence anywhere in the historical record that the financial authorities can stop it. They can hold it off – for a while. They can distort it. They can possibly divert it. They can make it worse. But there is no evidence that they can make it better.
Losses are losses. Mistakes are mistakes. They don’t go away when government throws money at them. They can be moved around… shifted from the people who deserve them to, say, the innocent householder. But somehow… some time… someone has to write them off and work them out. That’s the basic plot of almost every financial story you read in the paper and see on the news every day – the de-leveraging… the unwinding… the downscaling of the world economy.
Almost every business is reporting worse results than last year. An exception is the pawn shops – they say business is running 50% ahead of 2007. Another exception is Apple Computer, whose IPhone has boosted profits 26%.
Everyone else is singing the blues. Stocks are down all over the world. More money has been lost than in ’29 – much more.
Yesterday, the Dow dropped 231 points, following a strong showing on Monday. Oil slid further – to $72, and then below $70 overnight. The dollar rose to $1.30 euros. And gold dropped another $16 – to $773. If you lend money to the US government for 91 days you will be earning only about 1% annually. Still, there’s a rush to do it. Money is pouring into money market funds.
Most likely, there will be a big rally in the stock market – as there was in ’29. It lasted about 6 months and took prices back to shouting distance from their highs. But it was a sucker rally. In April of ’30, stock prices collapsed again. And then the economy fell apart too.
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Best-selling investment author Bill Bonner is the founder and president of Agora Publishing. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning and three best-selling books, Financial Reckoning Day: Surviving The Soft Depression of the 21st Century, Empire of Debt: The Rise of an Epic Financial Crisis and Mobs, Messiahs and Markets..
