The Coming Economic Crisis

by Jack Lee

Some days I think it doesn’t even pay to get out of bed, just more bad news. Prison inmates are being dumped back into society prematurely because of overcrowding, and the headlines reflect the consequences of such an ill conceived plan, more robberies, carjacking, burglaries, assaults, etc. . We’re still struggling to pull out of the Great Recession, the longest recovery on record. 31 states forecast their 2012 revenues will fall short of spending by over $55 billion, if all stays equal. The list goes on and on, and now we are being hit with sharply rising gasoline prices again….this one was inevitable should one serious thing happen to one refinery in California! We can’t catch a break.

The recent Richmond refinery fire was a prime example of what we all feared would happen some day, and as expected it has resulted in a 16% drop in West Coast production (higher fuel prices).

California has specially formulated gasoline by law, so we can’t import from other states when our production runs low. A good portion of the state’s tax revenue depends fuel tax and higher prices reduces overall fuel consumption and adds to local inflation which reduces discretionary spending, which reduces sales tax revenues. See what I mean? I keep looking for the good news and if there is any, it’s dramatically overshadowed by the bad news.

But, President Obama is making progress, right? We’re slowly, but surely, moving out of recession, right? Not necessarily. President Obama has created more government that demands more of our income, and he’s pushed us to our maximum debt limit of 16 trillion – that equals our entire annual GDP! There’s a first!

When was the last time in history American cities filed for bankruptcy? Never. That’s a serious wake-up call…something is wrong!

This massive debt was caused by a number of things, from bailouts of businesses too big too fail to quantitative easy (QE) in the money supply and it won’t go away easily. The QE is a dangerous game and sets us up for inflation… hyper inflation, is more likely. About the only thing holding it back is our high jobless numbers and sour economy. Inflation is typically kept at bay while a recession is ongoing.

If the truth be known our current situation is not too different than the old Weimar Republic just before they imploded and it took a wheel barrow full of money to buy a

loaf of bread. No, I am not exaggerating many economic scholars are warning us we’re headed in the wrong direction that can only spell disaster. If the USA falls into another deep recession there’s a good chance it will become a full on depression. But, we won’t be alone. The USA would be the trigger that pulls the world down…in a mega- depression.

There’s a book out called Aftershock and it outlines exactly where we are headed and why. The authors predict an economic meltdown because of the crushing debt and the implosion of two more bubbles. We’ve already been hit with four major implosions, starting with dot.com bubble, the stock market bubble, the private debt bubble which includes the real estate bubble and the discretionary spending bubble. (You might also add a higher education bubble and an energy bubble in there too.) But, two more huge bubbles are forming and left unattended they will most certainly burst and send us into spirally economic chaos. The two remaining bubbles about to burst are the government debt bubble and the dollar bubble. This is where America pays off our debt with dollars…worthless dollars and now we are at the bottom. Devastation looms large and the only way back will be in the hands of those who took precautions before the collapse.

Tomorrow I will be writing what you can do to protect your assets in the event this dire scenario plays out. But, even if it never happens we will surely feel some of the effects and we can minimize our pain… if we do the right thing before it’s too late.

CAUTION: Let me say this very clearly….life offers few guarantees, especially when it comes to global finances. Predicting economic collapse is a long shot, but, that’s no reason to throw up your hands and say, “Why bother listening? What will happen will happen! No it won’t – not if enough people are proactive in their fiscal management. The book uses world history, hard data, charts and more…it’s very informative. And if only a fraction of their predictions come true, then it was well worth your attention. Some of the people who like this book are: Robert Stovall, Chief Investment Strategists for Standard and Poors, Robert Friedman, former CFO, Goldman Sachs, Philip Cross, founder of AOL, to name but a few.