Economic Depression, Just Not That Simple

The Daily Reckonong ^ | 12-29-2009 | Bill Bonner

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Economic Depression, Just Not That Simple

By Bill Bonner

12/29/09 Ouzilly, France We are looking back at the year almost finished, and trying to figure out what lies ahead. The surprise of 2009 was that the stock market didn’t turn down again. Stocks worldwide were cut in half. Then, they bounced. A textbook, classic bounce…Normally, you’d expect the bounce to peak out after 5 or 6 months. This one hasn’t…yet. Our guess is that it will…

Of course, we could be wrong…

The ‘classic’ depression…a la Japan…comes about when an economy needs to make some fundamental changes. It discovers that a lot of what it has been doing was wrongheaded. Assets, valued at bubble levels, need to be marked down. People need to find new jobs; because the old ones no longer make sense. Businesses need to be restructured and retooled. Households, typically, need to stop spending and pay down debt.

This process is long and hard. The story of bubbles always begins cheerfully enough. But it always ends at Chapter 11, in long workouts…painful write-offs…and court cases.

“Recession Begins Flooding into the Courts,” says a headline in yesterday’s New York Times.

If this were a classic depression, we could anticipate another leg down in the stock market…more unemployment…and on-again, off-again growth over the next few years.

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