I
first came to national attention back in 2008 and 2009 when the housing
and credit markets imploded. I became known as the guy that other
market "experts" laughed at when I warned of trouble brewing in the
seemingly indestructible American economy. After the wheels ground to a
halt in mid-2008, people noticed that my book Crash Proof, originally released in early 2007, read like a detailed preview of many of the events that eventually unfolded.
Three
years later I am now catching heat from many who assume that my
predictions actually fell short. They argue that I was able to
anticipate the crash but that I severely underestimated the resiliency
of the American economy. They admit that we took an "unexpected" blow to
the chin, and that it left a lingering bruise, but they argue that we
never hit the canvas like I predicted we would.
However,
they mistakenly assumed that the crash I was warning about was solely a
housing led credit bubble. While that was part of it, I never saw it
ending there. The crash that most concerned me was the one that would
result from the government's response to the initial crisis. My concern
was not that our economy would succumb to the disease that I had
diagnosed, but instead would be taken down by the "cure" that the
government unleashed to combat it.
When
the government's delaying tactic, which involves continuous debt
accumulation and money printing is no longer tenable, the dollar could
collapse, borrowing costs and consumer prices could soar and the U.S.
economy could implode. That's the real crash that I was warning about,
and the one we all need to be worried about now.
This is the subject of my new book "The Real Crash: America's Coming Bankruptcy, How to Save Yourself and Your Country."
For now it is just a prophecy but as with my first book, it soon may be
regarded as history. Unfortunately, the policies of both the Bush and
Obama administrations, and the Ben Bernanke led Federal Reserve, have
vastly raised the chances that my catastrophic view will come to pass.
However, it's not all gloom and doom - I devote a large majority of the
book to solutions. The real crash may be inevitable, but what we do in
response is not. We can follow on the path that I recommend back to
prosperity, or we can continue on our current course which I believe
will lead to economic ruin.
When
looking back from a point in the future, I believe that the years
immediately after the credit collapse of 2008 will stand out as a period
of dangerous economic negligence. We have bought ourselves some time by
sweeping enormous problems under the rug. Through a combination of
political cowardice, economic ignorance, and false confidence, we are
digging ourselves into a hole so deep that it may take generations to
crawl out.
Most
people assume that half way through 2012 we have made some important
positive strides since flirting with the brink of economic catastrophe
in the dark days of 2008. Although no one is wildly celebrating the
below trend 2 to 3 percent GDP growth, we are continuously reminded that
we have turned the corner and that our situation is better than many
other regions around the world. But what has really changed?
Immediately
prior to the crash, the United States economy was experiencing
unprecedented consumer debt levels, persistently high trade deficits,
historically large government budget deficits, high-energy prices, and a
moribund manufacturing sector. Four years later, all of these problems
have gotten worse. And unlike four years ago, we are now saddled with
the highest unemployment rate in generations and levels of public debt
that would have been unimaginable then. Yes we are no longer technically
in recession. But I believe that is just an illusion created by perhaps
the cheapest, and most obvious, trick ever devised.
I
had argued that our economic growth prior to the crisis was largely a
function of the real estate bubble. When that bubble popped, I knew that
the economy would have to shrink. And that's just what happened. From
2008 to 2009 our national GDP (of around $14 trillion) contracted by
$212 billion. To prevent any further dips, the government aggressively
spent, borrowing heavily to do so. To the relief of just about everyone,
these moves did stop the nominal contraction. From 2010 to 2011 the
U.S. GDP expanded by $502 billion, and from 2011 to 2012 it added an
additional $508 billion. All told, from the end of 2008 the U.S. economy
added a cumulative $798 billion in GDP. But those gains came at a very
high price.
The
combined federal deficits for the same time frame come in at a
staggering $4.2 trillion! In 2009 alone the feds chalked up a chart
breaking $1.4 trillion in debt (the deficit was a mere $161 billion in
2007). In other words, we borrowed five times more than we grew. This
"strategy" for growth is no different from an individual who loses half
his income, but continues to spend by running up credit card debt. Could
this be described as economic growth? But that's just how we are
describing our current economy, and for the large part, expert
economists, politicians, investors, and academics all agree.
I felt certain before writing Crash Proof
that the government would never let the economy contract far enough to
restore balance and sustainability. I knew the spending and deficits
would head off the charts. I thought those realities would push down the
dollar and cause foreign creditors to shun American government debt.
However, I did not factor in the reprieve we have gotten from the false
perception that Europe is in even worse shape than we.