Britannia Radio

Monday, September 21, 2009  So Is the Recession Really Over?  by Larry Edelson

First things first. I'm sure you've heard about Bernanke's statement last week in his speech at the Brookings Institute that the "recession is likely over." After all, his comment is all over the news, all over the world. So, is he right? Considering he didn't even come close to forecasting a recession two years ago, how could he get the end of this crisis right? Here's my view: He's partly right, and partly wrong. Let me explain ... A. From a purely nominal point of view, yes, the recession may be over. We may even see GDP growth this quarter, or in the fourth quarter. Or even in both. And we've no doubt seen considerable improvement in durable goods orders, producer prices, inventories, stabilization in real estate prices, and more. Indeed, I've given you plenty of insights into an end to the recession in my columns of March 16 where I stated that strong rallies were forming in the Dow and in foreign markets ... that natural resources were about to go on a tear to the upside again ... on June 29, when I forecast that real estate was bottoming ...  and July 20, where I showed you that, surprisingly, unemployment was peaking. So, from the point of view of "conventional" measures of the economy and the markets and all that's developed over the last few months, Bernanke may be right. But in "real" terms — in terms of what the dollar buys today and what it will buy in the future ... B. We are still deep in a recession that started almost 10 years ago and may not end for several more years. It may even, years from now, be fully understood that we are actually in a "depression." How's that? First, the economy, in real terms, in real dollars before the dollar lost more than 30 percent of its value over the last several years — actually peaked in late 1999, and has been declining ever since. Second, the stock market has ALSO been in a bear market for 10 years in real terms, in terms of "gold," precisely paralleling the underlying economy. Third, for the economy to get back to its 1999 high in terms of the same money we had then — the same dollars with the same purchasing power that they had then — the economy's GDP would have to nearly QUADRUPLE. The stock market — to make new highs in terms of real purchasing power — would also have to more than QUADRUPLE. The reason for all this: There is now a bigger discrepancy between "nominal" values, the numbers and figures bandied about in Washington and in the media, and "real" values, what they are worth in terms of a money medium that retains its purchasing power (gold) — than ever before. So what you see and what it's truly worth — or will be worth in the future — are often completely different and very, very deceiving. I know this is a hard concept to understand. And I will continue to shed more light on this subject in the future for you. Reason: Because I firmly believe anyone who does not understand the critical difference between nominal and real values, is doomed to seeing his or her savings essentially wiped out in the years ahead. And even more so than the destruction that's already been caused by the great financial chaos. Consider my above thoughts in terms of the following quotes from two well-known, well-respected thinkers, who fully understood what I am talking about ... "The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists." — Ernest Hemingway, September 1932 "By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose." — John Maynard Keynes, 1920 Pay special attention to Keynes' statement: Not only is he 100 percent right, but most politicians today subscribe to Keynesian economics, making this perhaps one of the most dangerous times for your money, ever. It's also why gold is pushing up well above $1,000 an ounce, and preparing for its longer-term blast-off to well over $2,000 an ounce. But now is not yet the time to get aggressive on gold (a short-term pullback is way overdue). Since the depths of the Great Depression in 1932 (when Keynesian economics really took hold in Washington) ...   The dollar has lost 98 percent of its purchasing power ...   But gold has soared in value by more than 4,300 percent. Put simply, $100,000 of cash in 1932 is now worth merely $2,000 in purchasing power ... ... while $100,000 worth of gold bought in 1932 is now worth $4,449,313! Bottom line: Understanding how to protect and grow your wealth in an age of fiat currencies — money whose value can be manipulated at will by those in power — is more important than ever before because ... A. The dollar continues its decline, having just made a new 12-month low last week and is now also dangerously close to plunging to new record lows. B. Fed Chief Ben Bernanke tipping you off — with deafening silence — to his actual policy of letting the dollar be devalued to inflate away the financial crisis. And ... C. Cries for a new world currency have become louder and louder amongst our creditors and is undoubtedly on the "agenda" at the upcoming G-7 and G-20 meetings ... My view: You are witnessing a momentous time in history, where money itself is changing. Best wishes