The Advice of a Financial Advisor Matches Global Governance 2025 PredictionPosted: January 2, 2012
Dear Valued Clients and Close Friends,
If you were unable to attend the Client Appreciation Dinner in Houston on December 20th, here is a synopsis of our discussion, and my forecast and economic prognosis for the next few years:
The European crisis (not Greek, Italian, or Spain specific) is the beginning of a worldwide banking crisis. The spreading will occur because of the interconnection of markets (stock, bond, commodities). In particular, the Italian Gov. Bond crisis is large enough to bring down German/French Banking system. The proposed cure on the table right now is money printing of the Euro Dollar—Allows sovereignties to buy their own treasury bonds, too many printed will of course cause severe inflation such as what we are facing here in the U.S.
Keep in mind that: Bonds are loans used to finance gov. operations. (e.g., police, schools) No bond buyers, governments can shut down/melt-down. Chaos is probable. Remember the televised Greek riots.
The country of Germany[under A. Merkel] is the strongest E.C.B. Member (European Central Bank) and she doesn’t want to simply bail out smaller indebted nations and encourage irresponsible deficit spending.
Incidentally the U.S. Central Bank=The Fed under Bernanke, doesn’t seem to worry that printing money will cause inflation—Over 2 $Trillion in the past 3 years; but the E.C.B. does indeed worry.
Its important to know that the U.S. stepped in to avoid a stock and bond market crash [1st week of Dec.] via the Fed’s currency trading desk, which lent money to E.U. member nations at very low rates. If that didn’t happen, A Euro Dept default was inevitable; Effectively both US dollars and Euros will be printed, eventual results =inflation.; The anomaly=Printing more money seems to be the only answer.
This is how we have paid our debts over the past 3 years because we are the only country in the world (U.S. Dollar World’s Reserve Currency) that doesn’t need to convert their currency into an international trade partner’s in order to do biz with them…which will end soon. When we lose the World Currency status to (e.g. to the Chinese currency-Yuan), some say we could fall quicker into a depression.
Big problem here is not just Greek banks are failing, but French and German ones also after bad loans (bond purchases from) smaller nations in the Union. Key point: If German banks fail, particularly if not enough Euros begin to get printed—Europe fails with it, and dominoes to the rest of the world. Moreover, if Italy defaults on its bond debt, that too could topple the world financial system (some say very likely).
Greater than 50/50 chance: High worldwide inflation within 2 years (this will cause a huge stock market crash worldwide), its estimated that this will force economic “tight money policies again”. Will dry up loans as we saw in 2008, and thrust us into a worldwide depression.
This is how I see things in about 2-3 years from now:
The Depression begins in late 2013, early 2014, the first phase lasts 2-3 years characterized by the following:
Unemployment in excess of 35% (today its about 20% in reality).
Inflation hits 15-20% per year as the value of the U.S. dollar falls about 20% per year.
The more the dollar crashes, so goes the R.E. market further, stock market, and bond markets in like manner. Gold goes to $4K/oz.
Governments will greatly increase income taxes, sales taxes & property taxes due to rapidly falling tax base, from broke consumers. Governments forced to drastically cut budgets, including pensions, social security, food stamps, and unemployment insurance.
U.S. Treasury bonds begin to crash, cutting funding for government ops and payrolls. Today they are considered the next safest investment besides the U.S. dollar and money market funds. No more consumer tax cuts, no more money for stimulus programs, and no more funding of overseas wars and peace keeping. China will refuse to give our country loans to bail us out.
That was just the first 2-3 years, now comes years 4 & 5: Phase II
Social security will be eliminated for anyone with assets, including home owners, or even those with income. No more unemployment insurance funding. Food stamps will continue, but will be reduced to those only in dire need. (19% of population in U.S. on them now).
Homeless shelters will replace many apartments (or be rebuilt within) apartment complexes due the explosion of folks without housing. Shanty towns will begin.
Medicaid will be eliminated or combined with Medicare, but services and payments to physicians and providers will be greatly reduced. Many doctors will lose their wealthy lifestyles, and many small hospitals will close their doors –bankrupt.
One of very two small businesses go bankrupt.
Much more frequent and stringent audits by the IRS to get tax money from consumers in years 4-5 of the New Depression; lowest tax bracket jumps from 15 to 30%, and up to 60% for those left with moderate with high incomes. Sales and property taxes double; unemployment hits 45%.
Larger factories will avoid strikes by simply shutting down.
Small pockets of street violence in major cities will escalate (think L.A riots), government protests will turn violent. THESE ARE HARSH WORDS BUT…
Murders of family members and business mgrs will greatly increase, particularly those mgrs doing the firings and lay-offs.
More killings and attacks of lower level muni./state politicians. Higher level political leaders such as senators will be well protected from stepped up security and body guards. Politicians will become more reclusive, and no matter what they say, no one will like it.
There will be enormous anger at any partisan official, but a chaotic government overthrow wont happen, just high office turnover.
One of the few areas that will be hiring in years 4-5 of the New Depression will be private security contractors and state troopers, but they will no longer earn what they were used to. Inflation surpasses 40% per yr, and the US Dollar has now dropped by 50% in value.
Gold will exceed $5500/oz.
Now come years 6-9 of the Depression: Phase III
No jobs/high bankruptcies lead to little incentive to pay mortgages.
75% of all small businesses close their doors and 50% of all mid-size firms shut down.
Many banks become insolvent, and almost no market buyers of foreclosed homes. There will be no “runs on the bank.”
Much of the mortgage defaults will be handed over to the Gov., but they will be stretched so thin that sheriff evictions will be minimal. No one to buy empty homes of those evicted.
Even Apt. landlords will find it rare to find a good tenant to replace the bad ones, low evictions in that area as well. Shanty towns will explode everywhere (e.g. Fresno today)
Business centers will follow a similar path as individuals; Squatters will become very common in both biz and residential districts.
No more funding for municipal employee pensions in years 6-9, those funds pilfered to pay for needed services of police and fire.
Life insurance companies will not pay out the full value of policies they carry; so much of their assets depended on stocks, bonds & R.E. performing well. Whole life will be entirely replaced by Term life policies.
Although the FDIC insures savings up to $250K per account, any holdings over that held in a failing bank will be lost: Will send Schwab SIPC protection for your investments at your request, needless to say, you are protected well in excess of $1million in cash and $100 million for investments.
Anyone fortunate enough to find work (years 6-9, phase 3) will be forced to move down the ladder. $80K/year will become $40K/year, and no benefits will be given; Up to 60% unemployment at 7 years into the depression.
There will be no shortage of food to give to the poor. Up to 75% unemployment for those under age 30 and over age 55.
Universities & Colleges will burst will delusionary applicants thinking more edu is the answer, and student loans will dry up. Result: cost of edu will drop by about ½ or centers will close. Professors, like doctors mentioned earlier, will get a rude awakening in pay adjustments.
One of the few businesses that will prosper during years 6-9 will be auction houses (from all the bankrupt business liquidations, and estates). To a lesser extent, low end drinking establishments. Inflation surpasses 70%, with a commensurate decline in R.E., stock values and the U.S. dollar. (dollar bubble bursts). No hyper inflation occurs.
Because of no money, few jobs, and no discretionary spending, gourmet restaurants (or anything gourmet) will be rare. Fast food will do well but not necessarily prosper.
Cheap, high calorie food will double the obesity problem in this nation, caused from depressed eaters.
Speaking of depression, psychological pain and mental illness will go way up during this time. Clinical depression will be very common, up to 25% of the population.
The price of gold bullion will pinnacle toward the end of year 9, @ about $7K/oz.
Good news: After 8-10 years of this pain and suffering, the political and economic cycle will begin a turn around. Being that stocks and real estate can be bought at a nickel or a dime on the dollar (after the 90-95% previous drop), there will be a slow steady growth cycle that will begin with regard to asset value increases. Although our new depression will be moderately better than the GD of the 20s, the recovery will be very similar to that of the early 40s. It wont look very good the first few years, but a very profound event (past example=WWII) will cause the nation to rally together and cause unity in most aspects of business and finance.
Call me with any questions, and if I haven’t given you advise on your 401K or other investments not under my management, let this letter be a wake-up call.