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The Daily Reckoning

How to 'contain the depression?' More credit, economists claim

Bill Bonner is not too pleased with economists right now. In his latest post he claims that as a result of their conceits and delusions, trillions of dollars have been clipped from the world’s GDP, billions of people are poorer and their lives shorter.

By Guest blogger / July 11, 2012

In this undated photo released by the General Dynamics Land System shows the production of an Abrams tank in Lima, Ohio. The Pentagon says it will soon have enough tanks and wants to halt production for several years as it wrestles with deep cuts in military spending over the next decade.

General Dynamics Land System/HO/AP

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And oh yes…our new book is also going to explain why economists are completely incompetent. They claim to know things they could never really know…and to be able to do things they couldn’t do in a million years. As a result of their conceits and delusions, trillions of dollars have been clipped from the world’s GDP…billions of people are poorer…their lives shorter, meaner…with less stuff.

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Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning (dailyreckoning.com).

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Economists were largely responsible — usually in their policy-making roles — for the huge credit bubble that took debt to GDP in the US from 112% in 1972 to 296% in 2008. They told the feds that they needed a “flexible” currency. What they got, of course, was one that was flexible in one way only — it stretched out…but never came back. Credit expanded 50 times in the last 50 years.

Then, when the debt bubble blew up in ’08-’09, economists stepped in again…this time to prevent the private sector from setting things right. Instead of letting a crash and quick depression wipe out the excess debt quickly, the feds engineered a “contained depression” which can go on for decades.

What contains the depression? More credit!

Deficits…bailouts…subsidies…and the lowest interest rates ever. You can look throughout the developed world; the highest interest rate offered by central banks for short-term money is only 0.75%.

And now economists are warning that the US tax economy could fall off a ‘fiscal cliff’ at the end of the year. Tax rates will go up. Automatic spending cuts will come down hard. This will allow the depression to break out of its cage…or so they worry.

“Stop, before it is too late,” they say.

Over at the Pentagon, for example, contractors are forced to worry that their next boondoggle might be cut off. Military cuts threaten Barack Obama’s program of “Strategic Guidance,” says an article in today’s Financial Times. In addition, one million jobs could be lost! The US would fall into real depression!

If only!

Since the crisis began, private sector debt has gone down…but only to 250% of GDP. That’s still more than 2 times what it was when the US still had honest money. Much of that debt must be “bad” — in the sense that it couldn’t withstand a financial crisis…or wouldn’t still be on the books were it not for the feds’ clumsy meddling. That’s why nature, in her wisdom, provides us with natural debt-cleansing episodes…also known as depressions.

More to come…

Regards,

Bill Bonner
 for The Daily Reckoning

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on dailyreckoning.com.

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