Why yesterday was not the bottom

There's a lot of talk going around about how yesterday was just a "glitch" or that it was just a normal market correction, albeit wild.

I disagree. I think it is the beginning of something more long-lasting.

Yesterday I was at Fox; they asked me to come on to talk about the call I made on shorting the euro. (Many of you have profited from that because you bought my special report, Euro Crash Alert!)

While I was there I was listening to the commentary coming from policy makers, business leaders and market analysts and there was a common thread in the remarks that went like this: The United States had better be careful because we could end up just like Greece.

There was ZERO understanding of the distinction between Greece--a currency user--and the U.S.--a currency issuer. Nada, none, zilch, a big goose egg.

Then I bumped into Ken Langone. For those of you who are not familiar with him, he was the co-founder of Home Depot. He's a billionaire but somewhat of a loudmouth who thinks he knows everything about everything. You see, that's what we do here in this country; if you have a lot of money you are considered to be brilliant. It doesn't matter if you don't know shit, if you have money most Americans will consider you a genius. (The media certainly will.) By the same token, Albert Einstein, who was probably the smartest person to ever walk the face of the earth, made about $60k in today's dollars. Making money...true genius...different skill set.

Langone is this kind of guy. He's rough and outspoken, a great money raiser in his day (that's how he got Home Depot off the ground: he was the Wall Street money guy), but, but hardly a policy genius.

Anyway, he was explaining to me how the country was "broke" and how we have to cut gov't workers' salaries, reduce benefits to people and make drastic spending cuts. I tried to make him understand that government payments to people comprise part of their incomes and that payments made to firms for the purchase of goods and services are part of the income of those firms allowing them to hire people and pay salaries, but he would have none of that. He just couldn't seem to grasp the idea that for every dollar the gov't spends it equates to a dollar in additional GDP. In fact, many people just can't seem to grasp it.

Like most people, Langone believes that the gov't is broke and when it spends it is spending money it doesn't have and that comes off the back of the private sector, blah, blah, blah. The same crap you hear every day.

So as I am talking to him it occurred to me that we have these very influential busines leaders, like Langone, who are out there pushing this view; that major cutbacks in spending must be made and that is the only way we will get back on the road to prosperty.

Whether they know it or not they are pushing the very same austerity measures the IMF is now imposing on Greece...measures that are absolutely designed to make things worse.

This is what we are facing here in the U.S. While the Greek situation should not have had even the smallest influence on our market or our economy, it will, simply because we will end up imposing on ourselves the very same, destructive conditions being imposed on Greece even though we are in a totally different situation.

It's crazy, but it's happening. Whether it is Obama's Debt Commission or the spending freeze or tax hikes to "pay" for healthcare, it's all coming full bore now and it will ensure that the long-term outlook for the economy will be one of persistent high unemployment, weak output and broadening poverty.

Making matters worse is the fact that we don't have the political climate anymore to pass a second stimulus--somnething that is urgently needed--so it's pretty much written in the cards that when we go down this time it will become very, very, ugly.

At some point the automatic stabilizers will kick in and support output and demand at some level, but as Warren Mosler has stated many times, that support will occur the "ugly way."

Bottom line: stocks are going a lot lower.