Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown, by David Wiedemer, Robert A. Wiedemer, and Cindy Spitzer.
Lavishly praised by world-class experts, this hard-hitting book predicts that the financial crisis of the past few years will turn into an even greater, even total, financial meltdown.
Briefly: The authors explain that our economy is a multi-bubble economy, in which “six co-linked bubbles have been growing bigger and bigger, each working to lift the others, all booming and supporting the U.S. economy”: The real estate bubble; the stock market bubble; the private debt bubble; the discretionary spending bubble; the dollar bubble; the government debt bubble.
Part I describes the coming economic and financial tsunami.
“The first four of these bubbles began to burst in the Bubblequake that rocked the U.S. and world economies in late 2008 and 2009. Next, while most people think the worst is over, the coming Aftershock will bring down all six bubbles in the next two to four years,” totally changing the economic face of the U.S. and of the world.
Houses are still over-priced, and values must fall dramatically. The stock market is over-priced, fueled by money created by other bubbles and by the Fed. Assuming a constantly-growing economy, consumers and corporations took out loans they thought would be covered by ever-rising asset prices, which have since fallen, creating a private debt bubble.
Private spending accounts for 70% of the nation’s economy, but the collapse of the private debt bubble further restricts money available for non-discretionary purchases. Meanwhile, the US dollar rose in apparent value because of “rising demand for dollars to make investments in our bubbles.” Now the falling bubbles will eventually create falling-value dollars.”
Worst of all, “the whopping U.S. government debt bubble is currently the biggest, baddest, scariest bubble of all.” Eventually, the foreign buyers who have supported this bubble will no longer buy, and the withdrawal of their funds will being the whole house of cards tumbling down.
Just as the rest of the world profited from the U.S. bubble economy, so will it be devastated when all the bubbles burst. This will set off a world-wide “Bubblequake” that will wipe out trillions of dollars around the globe and deal a heavy blow to the economies of Europe, Russia, India, China, and the Asian “tigers” which have grown along with the U.S.
Foreign investors are discovering that the U.S. is a poor risk, with low returns; already, they have begun diverting funds elsewhere. When this trickle becomes a flood – which the authors predicted would happen sometime in 2011 or 2012 – we shall see a “triple double-digit”: Double-digit unemployment; double-digit inflation; double-digit interest rates. As I write this, we already have the first; the second may be upon us, if we factor in food and fuel; and the last is almost inevitable, as the PIIGs are beginning to discover.
For a variety of reasons, inflation will run wild, and the dollar will lose most of its value.
“Politically and socially, it’s bound to be a difficult time.”
Surprisingly, however, the authors predict that “the U.S. will suffer the least,” followed by Western Europe; Japan and Eastern Europe; then, China, India, and Brazil. Most of all, of course, “the poorest, most underdeveloped countries in Africa and elsewhere will do quite badly indeed.”
“None will suffer the pain of crushed expectations more than China,” as its exports to the U.S. and Europe dry up; its U.S. dollar holdings evaporate in value; its own bubble-economy will burst “with devastating force”; and “massive unemployment… and inflation” will occur “as the government is forced to print more money.” “All of these difficulties will create a populace that is much more supportive of political change in China.”
Likewise, the countries of the Middle East will be devastated, “and like China, the global mega-depression will likely accelerate political turmoil.”
Part II of the book offers helpful advice on how to avoid the dangers of the coming “Bubblequake” and even profit from it. Much of their suggestions seem quite sound, though of course no one really knows.
They see continuing job openings in “the necessities sector”: Health care, education, food, basic clothing, transportation, government services, and utilities, for example.
Part III offers “A New View of the Economy”
Using what they term a STEP (science, technology, economics, politics) evolution model, they predict a paperless financial system and a “single international currency.”
One of their more intriguing calls is for a U.S. government that cannot borrow money, and thus must make “massive and spending cuts,” which will be “coupled with big increases in taxes.” (Try telling that to the Democrats and Republicans in Washington!). Jobs will be scarce; loans will be hard for businesses to get; the economy will become “a little bit chaotic for a while.”
Eventually, foreign investors will find the U.S. attractive again, but not before “the difficult economy” creates “social unrest, but not chaos.” “Life will be much better than in the Great Depression, but it will feel much worse,” because our unrealistic expectations will be so utterly crushed.
Finally, the U.S. will become more productive, but we shall first have to “say goodbye to the age of excess.”
The only thing I didn’t like about the book was the authors’ constant reminder that they predicted much of this in 2006, as if they were the only ones. They fail to point out that many others, notably the people at Marin Weiss’ Safe Money Report, saw the same troubles coming.
Generally, however, I found Aftershock to be quite illuminating and persuasive, though not fully. The authors have far more hope than I do that the outcome of all this will be a healthier, happier society. What if social turmoil becomes chaos, followed by the imposition of martial law? If history is any clue, economic depression will spawn riots, revolutions, and wars. The U.S. already cannot keep the peace around the world (if it ever should have tried to do so); who will replace it? The U.N.? China? Russia? Iran?
It seems as if the party is almost over.
G. Wright Doyle