Let’s get this straight.

Household credit is shrinking… Profits are shrinking… Employment is shrinking… Housing values are shrinking… The wage base is shrinking…

But the recession is over!

Whoa… how is that possible?

This weekend’s news brought no surprises. For example, the housing picture is still depressing – unless you’re a buyer.

There’s “no bottom in sight” to Florida condo prices, says Barron’s. And Reuters warns that option ARM mortgages “are about to explode.” At least, that’s what the attorney general of the sovereign state of Iowa says. The option gives the homeowner the right to pay only the interest (or in some cases less than the interest) for the first few years. They’re sometimes called I.O. mortgages (interest only). And now these mortgages, written at the height of the bubble, are beginning to reset to more normal terms. According to Reuters 128,000 people in Arizona alone will face reset I.O. mortgages next year.

How

We received a letter snooty letter recently accusing us of confirmation bias. Maybe we are only capable of seeing the bearish side of the story?

According to good old Wikipedia, confirmation bias is “an irrational tendency to search for, interpret or remember information in a way that confirms one’s preconceptions or working hypotheses.” Put simply, it means you look for information that agrees with your own perspective.

In our case, we guess that means ignoring idiots like Paul Krugman, who tells us that we can spend our way out of a depression and the do-gooders in the Obama administration, who tell us that everything will be okay and that we’re about to witness a miraculous V-shape recovery. (Just like when President Hoover told Americans in 1932 that “prosperity was just around the corner.”)

And we guess it means paying attention to those who called this crisis ahead of time… guys like Will’s father,

 Goldman Sachs Would Have Collapsed If Not For Henry Paulson.

The Dow slipped a bit yesterday – only 39 points. Everyone is watching. They want to see how far this rally carries on. Many think it is more than a bear market bounce; they think it is for real.

The prevailing opinion is that quick action by the feds avoided a more serious meltdown. Ben Bernanke says he was working to prevent a “second great depression.”

And now that the crisis is past, the economy is slowly climbing out of its hole. The second quarter showed GDP falling at 1% per year in the US… rather than the 6.4% rate recorded earlier in the year. Housing sales have perked up. Oil is trading above $71 – a sign of renewed economic activity. And gold seems to be getting ready for another assault on the $1,000 mark – a sign of growing inflation pressures.

At

The bulls have their reasons, of course. Manufacturing is recovering, they say. Green shoots are sprouting! What they don’t seem to know/care about is that the reason manufacturing is recovering has little to do with a better economy.

This from Payout Trader editor Charles Delvalle (who, by the way, is bullish on US equities in the medium term):

Truth is the economy is still circling the drain, albeit at a slower pace. The real reason why the Institute of Supply Managements Factory Gauge showed better than expected numbers was because of the 12% increase in government spending due to fiscal ‘stimulus’ programs.

The June report showed up at 48.9 – just shy of the 50 mark. If the ISM rises above 50 it signals growth in manufacturing; less than 50 signals contraction. This 50 mark is extremely important, because most economists look at it to determine whether we are in a recession or

On Wednesday we warned readers of a coming blow-up of the Chinese economy, calling it a “tinderbox waiting to catch a fire.” The problem, of course, is that the US is not the only country hell bent on ‘stimulating’ its economy back to life. Communist China is at it too!

Like Japan did in the 1990s to get itself out of its own economic morass, China is splurging on massive public infrastructure programs. China’s banks are lending like crazy to fund these projects. In the first six months of this year, they loaned Rmb7.4 trillion (just over $1 trillion). That’s over three times the amount loaned out in 2008 and the biggest six-month lending surge on record.

Is China’s spending spree setting the global economy up for another leg down? China’s surging investment accounted for an unprecedented 88% of Chinese GDP growth in the first half of 2009.If that’s not a dangerous

It’s a Hard Life to be Rich.

We have spent the last few days holding back tears…

Michael Jackson! Robert MacNamara!

And now our heart goes out to Nantucket Island. Word came this morning that the rich are not living it up like they used to. The New York Times reports that it’s the slowest summer on Nantucket locals have ever seen. There are over 600 properties for sale – and none of them are selling. Even at discounts of up to a third off! Restaurants and bars are offering discounts too – anything to lure in the customers.

Here at the Daily Reckoning, we champion lost causes. We join the diehards. And we take up the banner of despised, persecuted minorities everywhere. So we are aggrieved by the plight of the rich. They’ve lost about $10 trillion in the downturn, according to our estimates. They’re being blamed for every sin

We keep having bad dreams about all the phony money central banks are creating to ‘fix’ the economy. This is not a figure of speech. We are actually having nightmares about this. We wake up in cold sweats.

The thing that bothers us most is the supposed solution to the problem – more easy money – is also the intrinsic cause. Governments around the world want to “reinflate” the economy. But we know there’s a fine line between “reinflation” and “inflation.” Hence our uneasy sleep.

Will’s father, Bill, has made a quick tally of the funny money entering the system. “The US Federal Reserve,” he writes in The Daily Reckoning, “has been authorized to “print” $1.75 trillion worth of new money in order to buy Treasury bonds. The Bank of England has its own program – worth £75 billion, so far. Even Switzerland has been printing money – so

The anti-wealth rhetoric isn’t confined to Argentina’s dysfunctional democracy. Will’s father, Bill, who recently visited us down here in Buenos Aires, says the “war against capitalism” is a worldwide phenomenon.

Bill pays taxes in Britain, where part of his publishing business is based. But now those taxes are going up. Governments, of course, have to pay for their boneheaded bailouts and ‘stimulus’ packages somehow. And so like the Peronists down in Argentina, they target “the rich.”

The feds – both in Britain and back at home in America – have chosen an easy target… the rich!

In the public mind, ‘rich’ and ‘banker’ are inseparable. Like ‘corrupt’ and ‘politician.’ What’s more, the rich were at the scene of the crime when the financial crisis began. The rich were caught red-handed. It doesn’t matter if the ‘rich’ man earned his money from doing heart operations or selling vegetables. Every rich person is presumed guilty