The Economic Flop That Was 2010

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The year is
almost over. Time to write the obituaries.

What kind of
year was it? A flop. A failure. A loser. Just like we said it would
be.

It was a “year
that fizzled,” writes David Leonhardt in The New York Times.

It was the
year that the economy started to recover and then slid back into
a slump – only to offer reason for renewed hope in the final
weeks.

When 2010
began, hiring and consumer spending were finally picking up. But
then something changed in the spring – a combination of the
debt troubles in Europe, the fading of stimulus spending and the
usual caution by businesses and consumers after a financial crisis.
By the summer, the unemployment rate was rising again, and Americans’
attitudes about the future were again souring.

Making matters
worse, many of the economy’s long-term problems also became
more severe this year. Health care costs continued to rise faster
than inflation, and the number of uninsured continued to grow.
The most recent climate data suggested 2010 would be the hottest
or second-hottest year ever recorded; the 10 hottest have all
occurred in the last 13 years, creating serious risks for the
planet and its economy. The federal budget deficit ballooned further
(though it should grow during an economic slump).

Fizzled? Nah.
He just doesn’t understand what is going on. The year couldn’t
fizzle out. It never had any real gas in it. It was flat and lifeless
from the get-go.

No great progress
for humanity was made in 2010. There were no great achievements.
The health care bill was a muddled fraud. The iPad may make communication
easier. Then again, it might make it harder. The year’s big
movie – Inception
– was a dud.

But what about
the economy?

The real, private
economy spent 2010 paying for mistakes it made over the last 20
years – particularly in the last 5 years. It couldn’t
undertake anything new; it had to reckon with things that it did
in the past.

Consumers generally
paid down debt…or defaulted. Businesses hoarded cash and refused
to hire new employees. Bankers made fortunes gaming the Fed’s
easy money system. They took the Fed’s money and speculated.
They lent out little money to the real economy.

Meanwhile,
the authorities were actively making the situation worse. Not just
with low interest rates. They had other bamboozle programs and crackpot
projects – notably “quantitative easing.”

In Europe,
peripheral countries such as Ireland and Greece were deep in debt.
So, what did the authorities do? Lend them more money! Result? They
are deeper in debt at the end of the year than at the beginning
of it. Now, their problems are worse than ever.

In America,
the year ends with the private economy a little better off and the
public economy a lot worse off. Two trillion worth of debt and liabilities
were added to federal accounts this year. In terms of federal finances,
the average man, woman or child will be about $7,000 poorer when
he rings out the old year.

This extra
money was supposed to spur the economy to growth and prosperity.
Did it do so? There is no evidence of it. Housing will generally
be cheaper at the beginning of 2011 than it was at the beginning
of 2010. And fewer people will have jobs.

Among investors,
some did well…some did poorly.

But at least
our Dear Readers will have something to celebrate. Just as they
have had every year of this millennium. Gold investors end the year
nearly 30% richer.

December
31,
2010

Bill
Bonner [send
him mail
] is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21st
Century
and
The New Empire of Debt: The Rise Of An Epic Financial Crisis

and the co-author with Lila Rajiva of Mobs,
Messiahs and Markets
(Wiley, 2007).

The
Best of Bill Bonner

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