This just in…Ben Bernanke and Tim Geithner have rushed to Los Angeles. If they can revive an entire world economy…why not the ‘King of Pop?’

Fans are hopeful…but here at The Daily Reckoning we take a discouraging view of these revival efforts. We admire the achievements of science and technology; as for the works of economists and central bankers, well…we’ll wait to see how things turn out.

Yesterday, we took up the biggest illusion of the Bubble Era. We held it up to the light…and noticed:

So deeply rooted is this illusion that it will take more than a strong wind to uproot it.

We’re talking about the idea that government bureaucrats can do a better job of allocating capital than free markets. Everyone seems to believe it. They’re allowing a handful of economists – who failed the critical test; not one of them noticed the market tsunami coming last autumn – to direct the flow of trillions worth of savings. They’ve already put at risk more than $12 trillion. Right now, they’re denying the need for more ‘stimulus,’ but that is likely to change.

$12 trillion is a lot of money. Adjusted for inflation, it is still more than twice as much as America spent in all of WWII. But it’s not just the money…it’s the future of the world economy that is at stake.

In a nutshell, the meddlers believe they can borrow their way out of debt. If you say that the key problem in America is debt, they won’t argue with you. But they think that they can overcome that problem by borrowing trillions more.

Many times have we argued that they will fail. We laugh at building dog walks …bailing out businesses that have lost their way…and paying huge bonuses to Wall Street execs. But those are just the obvious flaws. Down deeper, in the dark, corroded heart of the government economist is a fatal conceit.

We know from the experience of the 20th century that Friedrich Hayek was right. He called it the “Fatal Conceit”: the idea that central planners working for the government are free from sin and error. He wrote early in the century…when National Socialism and Communism were still popular.

Now we know; central economic planning doesn’t work. Everywhere it was tried it was a disaster. The more the bureaucrats planned, the bigger the mess they made. But now we are supposed to believe that central financial planning will save the world from the mistakes of the bubble era. That is the grand illusion waiting to be toppled. What fun it will be to see it come down!

In the news yesterday, the Dow rose 172 points. Oil rose a bit, after a pipeline in Nigeria was attacked. Gold was up a little too – plus $5.

All of this market action is just noise. The real plot to this story is the one we’ve been following here in these reckonings. The world economy is entering a depression. So far, nothing the feds have done has managed to stop it.

In Japan, analysts keep an eye on exports as a way of gauging the health of the global economy. If Japan isn’t selling, other nations aren’t buying. And if ships stop loading goods ‘Made in Japan,’ global trade is in trouble.

In the month of May, Japan’s exports declined 40% year on year.

Yesterday came similar news from Europe. Industrial orders in the Eurozone dropped 35% in April, from the year before.

“Fed on hold as slump eases,” reports The Wall Street Journal. What exactly is meant by ‘slump eases’ is unclear. As near as we can tell, the slump is getting worse.

“New home sales plunged 32.8%.” Bloomberg reports that house prices in California and Las Vegas are being hit hard by a wave of foreclosed properties. Yes, dear reader, the anklebone is still connected to the leg bone.

Bloomberg also reports, “jobless claims are up.”

A fellow loses his job; he can’t pay his mortgage. The house goes onto the market and pushes down prices. Prices in California are off 30% year-to-year, with the median house at $267,000. In Las Vegas, the median house is only $135,000 with 75% of sold properties coming from foreclosures.

The housing market is slow. But it works like other markets. It reacts…then, it over-reacts. It shoots. Then, it over-shoots. One study we saw said that housing prices were now down to “reasonable” levels. But there’s no law that says they can’t go to unreasonable levels. They were very unreasonable two years ago; they’re likely to be very unreasonable in the other direction before this depression is over. Hold on; maybe you’ll be able to get the median house in California for $199,000.

The WSJ notices that the leg bone is connected to the knee bone too, “house price falls are cutting into economy,” it says.

Well, what did you expect? That’s what house price declines do. People feel poorer because they are poorer. And with no source of ready cash – they spend less. Then…the whole economy weakens…etc….etc.

We’ve been over that enough times already. You don’t want to hear it again.

And remember how we warned of a big increase in credit card defaults? When the slump began…and consumers could no longer “take out equity” from their houses…they turned to credit cards to fill the gaps in household budgets. Since then, there has been no increase in household earnings. To the contrary, household earnings have gone down. So the fellow with more credit card debt and less revenue is in a predictable jam. What does he do? He defaults.

“Credit card delinquencies at record,” says one headline.

“Credit card charge offs break record,” says another.

Elsewhere in the news, we find GM closing plants and Ford cutting out half its suppliers.

Yes, the Fed is on hold. It dares not do anything else. Its voodoo revival program has not worked. The corpse of the real world economy is as lifeless as ever.

What will it do next? We wait to find out.

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