James Leroy Wilson's blog

Wednesday, April 27, 2005

America Needs a Recession

From Bill Bonner of the Daily Reckoning (which, next to The Partial Observer and DR's sister newsletter Rude Awakening, is my favorite name of an Internet publication):

What America needs is a recession. Americans spend too much money; a recession will persuade them to spend less and save more. Household indebtedness has risen to nearly 90% of GDP - a new record. It is up 20% since the mid-'90s.

A recession would also help cure China's export bubble; a recession in America will reduce demand for Chinese-made goods.

America needs a recession because its current account deficit has risen to 6.5% of GDP - an all time record. A recession will reduce the deficit. America needs a recession, too, in order to deflate the housing markets. Houses have gotten so expensive that many people can no longer afford them. House price inflation is at a 25-year high...while household earnings are flat or falling, in real terms.

A good, solid recession is just what the country needs.

But a good, solid recession is just what the administration and the Federal Reserve don't want us to have. America was about to have a good recessionary correction in 2001, but then the Fed panicked, and gave away so much money to so many - that people barely knew what to do with it. So, they bought knickknacks from China...and houses! And now there are bubbles all over the place.

There's a bubble in real estate...a bubble in China...a bubble in credit...maybe even a bubble in the bond and commodity markets too. It's a "mega bubble," says the Seattle Times, courtesy of the Fed's ultra-low lending rates.

The Greenspan Fed has evolved with the times. It seems to know just what role to play to do the most possible damage.

Today's full edition of the Daily Reckoning can be found here.

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