Another flag on The Daily Reckoning mast!

The First World War: 1914-1918. The First World Depression: 2009-??

“This is going to be even worse that I thought,” said our old friend, Doug Casey.

He was referring to what will most likely become the world’s first global depression.

“What happened while we were away?” was the question we had asked.

We just got back from our trip out to the ranch. What do we find? More of the same:

The Dow fell another 312 points on Friday. The index now stands at 8379. This morning, stocks are falling again in Asia.

In Japan, the Nikkei index finished down 6.4% – its worst closing level since October 1982. Shares in Hong Kong didn’t fare any better; with the Hang Seng index falling 12.7%.

And at the open this morning, the Dow is down over 150 points, as confidence in the U.S. government to help quell this global depression is further shaken.

‘Dow 5,000’ is our prediction. Not that we have any inside information. But when we look at a long-term chart of the Dow, we notice that it goes up and down. It tends to go way down after it has been way up – in long, 15-20 year waves. The top of this wave washed over us in January 2000. Since then, the index has been higher...but not when you adjust it for inflation.

It probably would have corrected to the 5,000-range already. But the feds intervened. And now we’ve really got trouble. Because in trying to head off a recession/bear market, the authorities provoked a housing bubble, a financial bubble, and a worldwide credit bubble. Homeowners over-bought. Banks over-lent. Consumers over-stretched. Almost everyone seemed to over-do it. So, what might have been a typical bear market has been transformed into a monster of deleveraging.

The planet’s financial press is beginning to see things our way. “In the first place, the U.S. federal reserve applied a very expansive monetary policy.” This is a quote from La Prensa in Buenos Aires. The article goes on to explain that a combination of fiscal and monetary stimulus in the early 2000s produced a huge party in the financial sector, with most of the liquor coming from residential mortgages. Banks all over the world got in the bubbly spirit. Too bad. Now, they’re all reporting in sick and calling the doctor.

The paper does not point it out; so we will: The world’s worst headaches will be felt by America’s baby boomers.

“I don’t know what they’re going to do,” said another friend over the weekend. “I know I’m in good shape. I’ve saved a lot of cash. I began reading The Daily Reckoning about two years ago...and actually started following your advice. I sold almost all my stocks. I’m in cash in and gold. I don’t even have a mortgage.

“So I don’t have too to worry about. But I’m worried anyway. I don’t know...maybe it’s just catchy. I’m cutting back as much as I can. For example, I was going to buy a new car. I went in the showroom and picked one out and everything. But I think I’m going to cancel the order. Well, the salesman’s not going to get his commission. And I’m going to start doing my own yard work. It’s silly in a way. Because I don’t have to. But it makes me nervous to spend the money. Which means, there’s some minimum-wage guy who’s wages are about to become even more minimal. And I figure that if I’m thinking that way, there must be millions of other baby boomers in worse shape than I am and they’re probably cutting back as fast as they can. Businesses have got to be cutting back too. And when employers look for fat to cut, they’re bound to find the baby boomers. And then what do these people do? They don’t have savings. And they’re not likely to get another job...not in a major downturn. It could be pretty grim all around.”

The latest report says unemployment in Rhode Island has topped 9% – the highest rate in the nation.

“But this has barely begun,” continued Doug. “The real cuts only began a few weeks ago. They don’t show up in the figures yet. All this takes time. First, it was only the bankers who were panicking. Then, it was investors. Now, it’s businessmen. And soon, it will be consumers. This kind of crisis runs downhill.”

Investors had plenty of reason to panic. This month alone, stocks worldwide lost $10 trillion. The world stock index is down 48% so far for the year.

Businessmen have reason to panic too. They’ll have a hard time raising money in this market. So, they have to cut new projects and old employees.

The next stage will come when consumers go on a rampage of thrift. Credit cards will go in the trash. Malls will be silent. Sales clerks will fall asleep on the job – and then be fired. Higher unemployment. More foreclosures. More bankruptcies.

And when Americans don’t shop, it will be products Made in China that they aren’t shopping for. That’s why the depression will be worldwide – the first ever.

“China, India, Brazil and Russia (the BRICs), the biggest emerging economies, export most of their products either to each other...or to the developed economies [mainly, the USA],” continues La Prensa .

Yes, dear reader...our “Crash Alert” flag is still up—even though the stock market, the housing market, the financial market, and the commodities market have already crashed. But now, there’s another flag up on our mast, a black flag. On it is a white duck laying on its back with its feet up in the air.

It is our way of warning you: “Global Depression Alert” it says at the bottom.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.