Coming Economic Crisis?
One of the issues on my radar is a potential coming economic crisis that some are referring to as "The Perfect Storm." For the past year I have been an avid listener of Jim Pulplava's weekly web cast, "Financial Sense Newshour." You can add the podcast and download more than three hours of news and financial information each week.
There is just far too much information available on Pulplava's web site to even provide a summary of his beliefs. The best option is to begin reading for yourself. Not only will you find his web site very informative, but also quite interesting.
I suggest you begin with a series of articles he has written under the heading of "The Perfect Financial Storm? Financial Storms Heading Towards the U.S. Economy."
The issues that lead financial advisors to suggest the U.S. economy is heading into turbulent times include:
- Federal Reserve's failure to allow the natural ebb and flow of the economy to occur, thus creating asset bubbles like the recent housing bubble.
- The Fed's monetary policy that is leading to a continual devaluing of the U.S. Dollar and the concern that too much U.S. debt is in the hands of countries not friendly toward the U.S. (e.g. China, Russia, etc.). Just this past week, for example, NBC News reported on the strength of the Canadian Dollar, which is a sign of the U.S. Dollar's weakness.
- The threat of peak oil, that the world will enter into a real oil crisis as the demands from developing countries like China continue to grow exponentially while the production of oil is declining. This is coupled with the strong environmentalist movement within the U.S. that prohibits the exploration for new sources of oil.
- The growing debt crisis within the U.S., both the federal debt and consumer debt. Again, this is compounded by the reality we owe countries like China our future.
Pulplava's co-host for "The Financial Sense Newshour" is John Loeffler. I first started to enjoy Loeffler's perspective as an avid listener of Chuck Missler's ministry, Koinonia House. Loeffler is the host of a weekly web cast called "Steel on Steel." He has defined a crisis "target window" of 2009 - 2012 as the period of greatest threat. He believes that it is during this three year period we will see these issues begin to metastasize.
For his part, Chuck Missler has also released a new briefing pack he is calling "The Vortex Strategy." As the promo clip states:
Compiled from public and private sources, Dr. Chuck Missler, an internationally known business executive, outlines our current economic predicament and defensive steps you can take to lessen the impact of the impending economic crisis.
I've listened to "The Vortex Strategy" and I'll post a review of it at a later date.
My Perspective on "The Perfect Storm" Scenario: as I listen to the various parties mentioned above talk about "The Perfect Storm" and draw conclusions, there is much that makes sense. I admit up front that I am a new student of economics, but I find it fascinating. With that said, I also am a student of history, and history and economics make an interesting combination. Like history, no one can predict what will happen in the economy tomorrow, next week or two years from now. Like history, however, we can learn from our past and make value judgments by observing historic trends.
Clearly, or so it seems, we are due for an economic correction of historic proportions. The last major correction in the economy occurred in the late 1970s until 1981. As Pulplava points out, it was Fed Chairman Paul Volcker who prescribed the harsh medicine that allowed the economy to cleanse itself and brought an end to the period of "stagflation" that marked the 1970s and early 1980s.
Since 1983, we have watched the economy grow, and grow, and grow with only a few minor corrections (i.e. recessions) in 1987, 1991, and 2001. We have also watched two historic asset bubbles expand and explode during this same period of time: the tech stock bubble of the late 1990s and the housing bubble from 2002 to 2006.
Moreover, the recent rate adjustment (September 2007) by the Fed was in response to the current crisis in the mortgage sub prime market and fears that this crisis could spill over to affect the whole economy.
Yet, in spite of all the indicators, I have to question whether this is a real crisis of historic proportions or another hiccup in an overall upward trend? I can't help but remember the doom and gloom forecast by the late Larry Burkett in his 1991 book, The Coming Economic Earthquake. Using what seemed to be credible data at the time, Burkett predicated an economic earthquake that would destroy the U.S. economy (and all of us along with it). The cause, in 1991, was the mounting federal debt.
As the 1990s rolled on, the next "coming crisis" that promised to bring absolute destruction to America was Y2K. Authors like Michael Hyatt sold many books first identifying the crisis and then helping us understand what we must do to survive the crisis. Again, the indicators were very credible. Major corporations were spending millions of dollars to correct the problem. Personally, I knew of several IT people who were assigned to various Y2K projects over the course of a three year period. While the Y2K advocates were publishing their books, selling "survival kits" and doing constant radio interviews, there were few voices of caution. One such man was Steve Hewitt, publisher of Christian Computing Magazine. In the end, the Y2K bug didn't live up to expectations. To this day, I do not know if it was a serious crisis that was avoided due to the hard work of many nameless men and women or if it was truly a hoax.
I bring up these two examples because as I read and research "The Perfect Storm" scenario, I find myself questioning if this is not the same hyperbole that fanned the flames of those two crisis. Clearly, I am not capable of providing an answer to that question today, but it will certainly interest me to watch this scenario unfold over the next three to four years.