The primary trend is down…

Stocks fell again yesterday. The Dow lost 66 points.

The big shakeout was in the gold market – with a fall of $21.

It is unusual for gold to fall more (proportionately) than stocks. So, what’s the gold market trying to tell us? And why didn’t it mention it before?

As forecast, rates of delinquency and foreclosure are hitting new records. One of every 10 American homeowners is in trouble.

Unemployment shows little sign of improvement, with hundreds of thousands of new college grads joining the jobless this month.

And now this: prices are falling at the retail level too:

The New York Times:
Consumer prices fell in April for the first time since early last year, and inflation rose at its slowest rate since the 1960s, a new government report said.

Energy prices led the decline, falling by 1.4 percent in April, the Labor Department said.

Consumer prices over all fell in April by 0.1 percent, the Labor Department said in its monthly report on Wednesday. The decline was the first since March 2009. Prices rose by 0.1 percent in March 2010.

The downturn was led by a decline in energy prices, especially for gasoline and natural gas, the report said. Energy prices fell by 1.4 percent in April, the department said.

Food prices rose 0.2 percent, mostly because of higher costs for meat, poultry, fish and eggs.

But without the volatile prices for food and energy, the core index for consumer prices remained flat, as they did in March. Over the 12-month period that ended in April, the core index rose 0.9 percent, which economists said was the lowest it has been since the 1960s.

Everything is going down. Stocks. Commodities. Real Estate. China.

What happened to the recovery? Is it taking a breather? Is it just ‘fragile,’ as most economists believe?

No. It hasn’t slowed down. It isn’t fragile. It just doesn’t exist.

Paul Volcker:

“Any thoughts that participants in the financial community might have had that conditions were returning to normal should by now be shattered,” he said. “We are left with some very large questions: questions of understanding what happened, questions of what to do about it, and ultimately questions of political possibilities.”

No return to normal. No recovery. No inflation.

But before you get too comfortable with falling prices, remember that they can rise suddenly.

Dear readers will recall our Daily Reckoning position in the inflation/deflation debate. Asked whether we are headed towards inflation or deflation, we reply: ‘Yes!’

Pressed to give a more helpful response, we elaborate:

‘We will have both inflation and deflation. Probably in reverse order. Prices will fall as the private sector de-leverages. But they will eventually rise, as the public sector both leverages itself with debt and then monetizes the debt by creating more dollars.’

We are still in the early stages of what is to be a long period of restructuring and re-adjustment – a Great Correction. So far, the private sector has begun paying down and destroying debt. And the public sector has begun to increase its debt and destroy its own credit. Falling prices tell us that the private sector de-leveraging is continuing…and that the public has not yet lost faith in the government’s money. That will come.

Paul Volcker also said that “time is running out” to save US finances. You can’t go on a spree, spending trillions of dollars you don’t have, and not suffer the consequences eventually. Unless action is taken quickly, says Volcker, it will be too late.

The Wall Street Journal reports that state pension funds may already need a $1 trillion bailout.

Europe just initiated the biggest bailout to date – almost $1 trillion to bail out Greece, and spare mainly French banks from taking the losses they deserve.

But Greece is in no worse shape than the US. Deficits are about the same. So is total debt, when you include the debt of Fannie Mae and other enterprises, for whose debt the feds are now responsible. And how about funding those debts? Turns out, as a proportion of GDP, America’s funding requirements for this year are actually 50% greater than the Greeks.

One day, investors, householders and lenders will lose confidence in the full faith and credit of the United States government. Then, even in a slumpy economy, inflation will return. People will rush to get rid of their dollars. Prices will rise, fast.

This crisis has a long way to go…

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