This article will either scare you stiff or make you laugh because you’ll think I’ve lost my marbles. But either way, hopefully you will think about the “what ifs” associated with some kind of economic calamity.
To give you some context, it’s not like I’m any sort of conspiracy-theorist, whacko, or maniac. I’m a level-headed guy. I studied biology and Spanish in college and I had to learn to question everything. I read the newspaper. I don’t live under a rock nor do I take any medication for any tendencies.
Even before I started studying economics seriously, I wondered how everyone could trust that a one dollar bill (U.S. dollar) was worth one dollar if the government could just print as many as they wanted. The more I learn about the current U.S. economic situation, the more fearful I’ve become. The following is my best prediction for a worst-case scenario in 2012 or 2013:
1.) The stock market crashes, losing 95% or more of it’s value. This would be exactly as some experts (most of which are smarter than me) predicted, known as the “dead cat bounce” after the last crash in 2007-2008. Precious metals and treasuries rally during the crash, but eventually top out and crash as well.
2.) Banks fail. First the investment banks beg the U.S. government for additional funding, but there will be no money to give (was there ever?). The elected officials want to do another bailout, but the American people erupt in chaos and demand that the companies fail. No matter how many banks fail, credit seizes and any size loan is virtually impossible to obtain.
3.) The ripple effect of the banks hits Europe, China, and other creditor countries especially hard. This starts the erosion of the major currencies. The dollar and the euro inflate rapidly and investors jump to safer currencies.
4.) Meanwhile, U.S. companies contract along with the credit and are forced to lay off hundreds of thousands and then millions of workers. Companies that rely on sales of middle class luxuries (lattes, massages, fancy clothes) shutter their doors. Companies that sell to the upper classes will be affected, but not as dramatically. A massive lower class is created, and without federal aid, is unable to survive.
5.) The housing market continues to fall into a giant sinkhole. Recent college graduates are burdened with student loan debt and families are unable to afford assisted living centers for older family members. Families move in together, with multiple generations living under the same roof. Many homes are boarded up or burned for insurance money. The value of real estate dwindles.
6.) Americans continue to be scared of the U.S. government and corporations. When individuals try to withdraw cash reserves at their local banks, they are told to come back later. This quickly hits the news and mass panic ensues.
7.) Rioting occurs throughout the country, mostly in large cities. The national guard is called to maintain control of the bigger cities. The presidential administration is forced to withdraw troops overseas to serve as peacekeepers within U.S. borders.
8.) The U.S. continues to operate, but at a different capacity than the one we’ve all been accustomed to since World War II. The U.S. will no longer be able to “police” other countries. Military spending is cut drastically and America is unable to provide significant protection to ally countries. By now, most of the wealthy class has moved their money to international opportunities like Japan, Brazil, and other developing nations.
9.) The U.S. people will go through years of electing political candidates that promise “better business sense for the government” and “fewer taxes”.
10.) The U.S. president who finally starts to turn things around will be the president (hopefully a woman) that instills pride in the American people and does what’s best for the people, not what’s best to be re-elected.
11.) The U.S. will go through a long (decades) period of growth and development, but not as the world’s superpower. Families will reflect on the breakdown of the U.S. government and Wall Street stealing money from the American Dream.
Scared? Laughing this off as irrational? That’s okay. Even if I’m way off-base, it’s nice to think about this ahead of time, right? Use your own brain to think about what will happen and how your family will react and adapt to the changes. If you’d like to learn more about this topic, I suggest The Great Depression Ahead by Harry Dent.
What do YOU think the future has in store? What did my scenario get wrong/right? I’d love to hear your comments.
~Nick, the Self-Taught Economist