STAFF NEWS & ANALYSIS
Recession Past Nadir
By Staff News & Analysis - July 23, 2009

The global recession has now passed its nadir but the financial crisis still has some time to run and it will be a year at least before banks start lending again in earnest, a Reuters poll showed on Wednesday. The survey of analysts from across Europe and the United States between July 20 and 22 found 52 of 76 saying that a bottom had already been hit in the global recession, compared to just 28 of 65 in an April poll. The findings come on the back of more upbeat news and a rally in world equity markets on hopes of a recovery from the worst recession and financial crisis since the early 20th century, however slow that recovery may be. "Leading indicators as well as some hard facts suggest that the worst is over and that the industrial countries are close to the beginning of a moderate economic recovery," said Fabienne Riefer at Deutsche Postbank. – Reuters

Dominant Social Theme: Things will be OK.

Free-Market Analysis: Let us remember that a recession is merely a depression that has not been fully realized – something that that forward thinking congressman from Texas, Ron Paul (pictured above), is quick to point out. Thus, if it is said that the "recession" is running its course, this really means the economy has not been fully purged nor have the industrial distortions of the previous bubbles been entirely alleviated. Is this somehow supposed to be good news? Is it good news that the monetary elite are re-inflating industrial and monetary bubbles without dealing with the underlying problem?

Notice, too, even in the excerpt above, that the way out for the economy begins and ends with banks starting to lend again. Is this truly the only option that Western nations have when it comes to kick-starting companies? No … there are plenty of ways to develop capital for enterprises. There are family and friends and private investing and partnerships, etc. None of these depend on bank lending. Bank lending in fact has little to do with entrepreneurship. Banks, especially larger banks, usually stand ready with money only after a venture has proven itself successful.

The way to jump start the economy sooner would be simply to offer an aggressive tax cut. Fiscal rather than monetary policy is key. But you wouldn't know it given the amount of emphasis placed on monetary policy in these situations. And as we have written before, monetary policy is a most awkward and clumsy way to jump-start a fiat money economy. The reason to do it this way is because by using bank distribution, central banks and the monetary elite that stands behind them get to emphasize the irreplaceable nature of the financial system as it is.

When a downturn comes – one naturally and ironically caused by the central banking mechanism itself – central bankers swing into action. They are everywhere with grave faces and solemn solutions that always involve the printing of more money and distributing it through money center banks. It matters not if the money is further distributed or if there would be other more efficient ways of creating prosperity. This is the way it is done. Central banks print money and cause horrific bubbles and busts – that is a simple cold hard fact of life. Then central banks print more money to stimulate the economies they have helped to ruin – another cold hard fact of life. And then, for a while, (so long as people are genuinely angry) they turn up everywhere – even for the opening of an envelope, it seems – to drone out about the irreplaceable nature of central-banking run economies – an even more sickening cold hard fact of life.

By stubbornly refusing to target individual consumers or businesses themselves, central banks and their enablers ensure that economic downturns continue for a longer rather than shorter period. Yet there is no doubt that if individual businesses and entrepreneurs could gain access directly to fiat money, recessions and even depressions could be almost immediately alleviated.

Of course, the nature of the bubble economy would not change, but the benefits of fiat money, and the extraordinary amounts of wealth to be generated, would flow more evenly to Main Street as well as to financial entities. Yet this is not an issue that a central banker wishes to debate, as it brings up the system itself – and presents the ugliness of the skeleton underlying the propaganda that has cloaked it in mystique. When Bernanke was asked recently why he did not distribute funds directly to needy businesses he pointed out that the statue under which the Federal Reserve operated did not contain provisions for such distribution.

The way central banks have first pushed Western economies into a ditch and then lifted them up – giving only financial institutions a hand up – is a recipe for a Japanese "lost decade." We see no reason to change our minds. There is a commercial real estate crisis yet to come and derivatives still do not seem to have been unwound with any great enthusiasm. Whatever green shoots Reuters' economists say they see, are fairly unobvious to the average observer – and certainly to us as well.

After Thoughts

Assuming that there is some sort of recovery, the tens of trillions dished out to banking entities will have to be sterilized by aggressive tightening, almost assuring a double dip recession. Worst case, the recovery is not much different than the current "recession" but prices go up anyway. Economies will generate price hikes but not jobs and disaffection with the current system will build. Unlike previous decades, the reasons why this scenario is occurring will be evident to anyone with access to the Internet. And that is why we continue to predict that the era of central banking as we have known it is over and why, eventually, some sort of metals standard, possible a market-based one, will rise up to challenge it.

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