The Great Correction has a lot of work to do — there are so many things that need correction. And it will take time to do it. Meanwhile, your goal as an investor is to lose less money than everyone else. He who loses least wins!

Stocks should go down. Real estate should go down. Even gold should go down...as the dollar goes up!

Cash will be king...

..until the revolution.

What kind of revolution? When?

Ah...dear reader...you’re asking a lot from ......

But what the heck... We’re happy to tell you what we think. We just hope it’s worth at least what you paid for it.

Here’s the way we see it. Cash is king in a de-leveraging, dis- inflationary, depressing slump. The king should reign for a long time...because it will take a long time to squeeze the excess debt out of the US economy.

But as you know, there’s a lot more going on. While the private sector reduces its debt the public sector adds debt. And the people who run the public sector are activists...determined to de-throne the king. They are plotting treacherous acts of insurrection... They are looking for the Bastille!

Here’s Ben Bernanke, stirring up the mob. Bloomberg reports:

Federal Reserve Chairman Ben S. Bernanke said the US is facing a crisis with a jobless rate at or above 9 percent since April 2009, and that fiscal discipline would help spur the economic recovery.

“This unemployment situation we have, the jobs situation, is really a national crisis,” Bernanke said in response to questions after a speech yesterday in Cleveland. “We’ve had close to 10 percent unemployment now for a number of years and, of the people who are unemployed, about 45 percent have been unemployed for six months or more. This is unheard of.”

Mr. Bernanke is preparing the crowd. He wants to take action to topple his royal highness, king dollar. He wants to bring cash down... And he figures that the way to do it is to drop him out of a helicopter.

When people see so much cash fluttering in the air they’ll want to get it...and get rid of it...as soon as possible. That will get the economy rolling again and convince people that he, Ben Bernanke, actually knows what he’s talking about...and that he, Ben Shalom Bernanke, should be in charge. He should be the real monarch...

But Mr. Bernanke’s hour has not come round yet. He is faced with opposition in Congress...and in his own central bank. He will have to wait before it is time to slouch to Bethlehem...he’ll have to wait for things to get worse...then, he’ll be able to start up the helicopters.

What might make things worse? When? Keep reading...

And more thoughts...

Here’s more bad news for the world economy. Again, Bloomberg is on the case:

China Growth Seen Less Than 5% by 2016: Poll

Most global investors predict Chinese growth will slow to less than half the pace sustained since the government began dismantling Mao Zedong’s communist economy three decades ago, a Bloomberg poll indicated.

Fifty-nine percent of respondents said China’s gross domestic product, which rose 9.5 percent last quarter, will gain less than 5 percent annually by 2016. Twelve percent see such a slowdown within a year, and 47 percent said it will occur in two to five years, the quarterly Bloomberg Global Poll of investors, analysts and traders who are Bloomberg subscribers showed.

China, which saw its exports tumble the most since at least 1979 amid the 2008-09 global crisis, may not be able to rely on trade in any prolonged demand slump in Europe and the US, now battling to avoid returning to a recession. Managing the economic downshift would fall to the Communist Party’s next leaders, as President Hu Jintao and Premier Wen Jiabao begin their transition from power late next year.

“If we’re not buying things, they’re not making them,” said Charles Doraine, Chief Executive Officer of Doraine Wealth Management in Corpus Christi, Texas, and a respondent in the poll of 1,031 investors, analysts and traders taken Sept. 26.

If Americans don’t buy, Chinese don’t make. That leaves both of them feeling a little poorer.

*** And here’s what happens when people get poor.

PHILADELPHIA (CBS) — Thousands of Philadelphia residents gathered in long lines, citywide, waiting hours outside of 12 County Assistance Offices, hoping to apply for relief following Hurricane Irene.

The residents, many confused and lacking official information, hoped to receive a month of food stamps for food ruined by floods and power problems caused by the hurricane.

The program, called Disaster SNAP (Supplemental Nutrition Assistance Program), was created by the federal government and is administered by the State Department of Public Welfare.

Because of unexpectedly large turnouts, the application process was moved from Disaster Recovery Centers in Philadelphia to the 12 state offices in neighborhoods citywide.

Residents, based on income, household size and proof of flood-damage can receive up to a month’s worth of food stamps.

Those already receiving food stamps are eligible for partial relief, to the extent that their prior month’s food supply was damaged.

Throughout the day Monday, and beginning early Tuesday morning, many state offices had lines stretching for blocks with confused residents, many alerted by other neighbors that relief was available.

Little if any guidance was available at offices in the early going, although later in the day, officials did permit applicants to fill out forms outside the building instead of waiting for hours in line.

*** A thought keeps coming to mind. This correction is bigger, meaner and longer lasting than even we imagined. It’s not just taking us through a normal recession cycle...and not even through a normal credit contraction.

Actually, we have so little experience with credit contractions that we don’t know what normal is. Like the US in the ’30s? Like Japan in the ’90s?

At least we know how, in theory, credit contractions work. People cut back spending until they have rebuilt their balance sheets. That’s why they are also called “balance sheet recessions.” We can also make some estimates about how long they will last, based on how long it should take to pay down debt. When the correction began we calculated that it would last 7 to 10 years. That’s how long it would take to pay down debt to ’80s levels, assuming savings rates went back to where they had been at the beginning of the ’80s.

Now, it looks like it will take longer. Maybe forever. At least, it will seem like forever.

This is partly because the feds interfered. They panicked when it looked like the process of de-leveraging was out of control. People were going broke — even people who made large campaign contributions! Even people who were members of that privileged fraternity — bankers! So, they came in...and locked up the economy in its depressed state, keeping zombie institutions alive indefinitely.

But that’s not all. It will also take longer because it is a more serious correction. It has a lot of work to do. What exactly?

Well, we don’t know exactly. But many of the governments of the developed countries are not likely to survive.

‘Wow, Bill, have you lost your mind?’

We don’t take anything for granted. And we know that we are sometimes right and sometimes wrong. And always in doubt. Still, the social welfare governments of the modern world are not equipped to deal with this challenge. They were designed for growing economies, not stagnant ones. They were all created in a period of growth — made possible by the widespread introduction of cheap fossil fuels. That period is over. Temporarily or permanently. And the dinosaurs of the growth era are unable to adapt to the colder climate of the new age of austerity.

Here in France, for example, they’ve already taxed the rich about as much as the rich can stand. And they’ve robbed future generations as much as they could get away with. What else can they do?

In the US, they can probably tax the rich harder...but it will yield peanuts, perhaps even reducing the feds’ take. America’s providential state is less generous and less ambitious socially than the French model. On the other hand, the US is far more ambitious militarily. For every layabout chiseler the French supports, the US supports two soldiers and one Pentagon contractor. The cost is staggering ...and probably even more irreducible than Europe’s social costs...

Neither the Europeans’ social welfare states...nor the Americans’ welfare/warfare state...are likely to survive in their present forms.

Regards,

Bill Bonner,
for The Daily Reckoning