Notes From Underground: Why is “DEPRESSION” Making its Way Back into the Mainstream Lexicon?

The news has been more than dismal for the last three months and the equity markets have certainly reflected fears of a renewed global recession. However, as interest rates are being held at historically low levels and growth continues to stall, the idea of a DEPRESSION is making its way onto the opinion pages of financial news.

Friday, the Financial Times ran an op-ed piece by George Soros, “How to Stop a Second Great Depression.” While Soros has been a great trader over four decades, his analysis of global politics has failed where his trading has succeeded. Soros has been an uncritical cheerleader of the European Union for many years and it is only recently that he has begun to doubt the efficacy of the political union. When he has offered advice it has generally involved bypassing democratic niceties and having the EUROCRATS trod upon the idea of nation-state rights.

Now that the EU may be pushing the global economy into the a new recession, Mr. Soros is worried and providing advice on how to prevent a further slide in European growth. It is the banks that must be supported so as to prevent a credit crisis larger than Lehman. In his proposal, Soros does provide for the necessity of adhering to EU Law [unusual for the Philosopher King] as he maintains that his suggestions do not conflict with Article 123 of the Lisbon Treaty. Whether Article 123 is abrogated or not is not the issue. What is more telling is that the man deemed to be the key adviser to the DEMOCRATIC PARTY is sounding off about a SECOND GREAT DEPRESSION.

Following the Soros piece is a Telegraph article by Ambrose Evans-Pritchard, “Protectionism beckons as leaders push world into Depression.” It seems that Evans-Pritchard is castigating the nations with current account surpluses and healthy fiscal policies as forcing austerity onto the global profligates without the thrifty ramping up their domestic demand to aid the growth in the global economy. The finger is pointed at Germany and China and Pritchard warns that the purveyors of austerity will create a situation where the U.S. and other democracies have to enact protectionist measures to placate the voters.

The more austerity that the Germans demand, the slower the growth will be in Europe, resulting in further slowdowns in the rest of the world. If the SURPLUS nations fail to raise their spending levels and allow for their currencies to appreciate to help make for a readjustment, the world is heading for a doomsday scenario.

QUICK HITTER #1: How long will it be before BERNANKE becomes more nervous about the global economy and moves to enhance the current FED programs? This is the question we will have to keep asking as we are now in the fourth quarter and the economy has failed to respond to ZIRP (zero interest rate policy). The huge selloff in commodities, equities and previous growth based currencies begs the question of where investment possibilities exist for even GOLD has been sold as the financial world is beginning to perceive that the policy makers are bereft of answers.

If the last resort before protectionism and its impact is the HELICOPTER DROP THEN THE GOLD/CURRENCY CHARTS WILL BE THE GUIDE TO FORTHCOMING MASSIVE MONETARY STIMULUS. As Soros and Evans-Pritchard have conveyed, the previously unthinkable is now front and center on the minds of policy makers. REMEMBER THAT BERNANKE IS A ’37ER and he promised Milton Friedman that monetary policy makers would not make the mistakes of the 1930s again. As some would say, just do the math.

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4 Responses to “Notes From Underground: Why is “DEPRESSION” Making its Way Back into the Mainstream Lexicon?”

  1. rohrintl Says:

    There just might be a bit of misperception that European weakness and solving the debt crisis is the main driver of economic unease. In the scheme of things the US problems are even bigger, and the lack of growth at the heart of the world’s conspicuous consumption is the real risk being masked by the European and US fiscal challenges.

    It’s more likely going to end up being about the US regulatory environment, which is the real killer in the economic investment and jobs picture right now. Interested in what you think about that Yra.

    Also, as a heads up, Dallas Fed’s Fisher on CNBC early Monday, and he’s been outspoken lately on there being nothing more the Fed can do and his district businesses completely freaked out by regulatory outlook; it’ll be interesting.

  2. Ben Says:

    Thanks as always for sharing your thoughts. You’ve mentioned the gold/currency crosses several times so I just wanted to make sure I understood your thinking. Is the theory that when a country is plotting further easing it will show up in the gold cross before the news hits and thus we should look for gold to be weak vs. the dollar (in comparison to other majors) as Bernanke prepares to ease further?
    Was the Swiss’ recent nuclear move telegraphed at all in the CHF/Gld cross? Thanks,

  3. yra Says:

    Ben–In my years of work the GOLD is the best indicator of disdain for fiat currencies.The world’s reserve currencies have value whne growth is rising and real interest rates are positive.The world’s smaller currencies like the aussie,canada,kiwi cannot act as a store of value for their limited size means that the increased demand relative to their economic size quickly erodes any inherent relative value to the major reserves–like rushing into a stock with a small float.The GOLD/CURRENCY crosses will provide investors with a good barometer for the world’s view towards the reserve currencies—in a period of concern of return of wealth means that the world seeks a genuine store of value.The Swiss Franc is an example of a small currency attaining a rediculous level as the world’s investors search for stores of value

  4. WOW Says:


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