BOOK REVIEW
AFTERSHOCK (2ND EDITION) SPRING 2011 – PROTECT YOURSELF AND PROFIT IN THE NEXT GLOBAL FINANCIAL MELTDOWN
AUTHORS:
DAVID WIEDEMER, ROBERT WIEDEMER, CINDY SPITZER
Aftershock II (Spring 2011) is well timed and again an exhaustively researched/supported update to Aftershock I (early 2010).
This is a must read for all. The Wiedemers, renowned financial advisors, in 2005, precisely predicted the 2008 economic debacle; then in 2009 precisely again predicted fiscal and monetary policies which have placed us in a more precarious environment now, than 2008. They now predict an economic catastrophe sometime in the 2013-2015 time frame, with only a sliver of a window to ease (and only ease) the pain the world will experience. Ignore this at your own peril.
Why such prospects?
Major reasons include:
growth of our government debt by 10 to 15% a year while our GDP grows 1-2%
tripling of our money supply in light of the anemic GDP growth (Fed balance sheet jumped from 8/10th of 1 Trillion dollars to 2.4 Trillion now).
Therefore, per laws of supply and demand (no demand for the extra dollars), with an 18-24 month lag, inflation will surface. An immediate result will be first weak but then no foreign investors buying our exploding debt. Once inflation reaches 10% and then exceeds it, foreign investors will invest at lower risk in their own local countries and/or elsewhere.
There are two versions of Aftershock II – original and abridged. The abridged does not contain a ‘controversial’ chapter. I have the original. I believe this chapter is “Pop Go the Dollar and Government Debt Bubble”. This is the most important chapter of the book. It strongly analytically persuades one that we are headed toward economic calamity. Numerous statistics and charts strongly support this. Still the book offers a tiny glimmer of hope perhaps to encourage our leaders to risk their political careers and address our Government debt. Even if they do there will be severe economic hardship ahead. But if we do nothing (their prediction) the eventual hardship will be more severe. For example, stop the Government debt at $16 Trillion instead of $20 Trillion and experience perhaps 20% less hardship. Longer term, after we recover from the ‘Aftershock’ (will take minimum of several years and that means no more ‘Nanny State) the authors predict we will enter a new age of innovation and economic growth.
More details why we are headed for economic catastrophe?
Because until there is significant demand, no asset (ex US dollar) can retain its value. Hence, inflation is inevitable and a dollar collapse will follow. Once inflation reaches 10% expect foreigners to stop financing our debt.
So why can’t our leaders understand this?
One main reason is that the US is economically illiterate and too reliant on entitlements. Our leaders risk political suicide if they address the government debt in a significant way.
The authors argue that in all likelihood only a major catastrophe will mandate our leaders to act to address our economic woes. By then there will be no other choice. No one will be financing our debt.
At $14 Trillion debt (time this book was written Spring 2011) our debt was 7 times our Government’s income taxes of approximately $2 Trillion. By January 2013, with projected $16 Trillion debt, our debt will be 8 times our Government income taxes. Will you get a loan if your debt exceeds your annual earning potential by 8:1? Investors will not with combination of such a high debt level and inflation at 10% and rising.
We also have no plan to pay off our debt. This is incredible. At $15 Trillion debt (Nov 2011) with an annual payment of $500 Billion it would take 30 years to pay off our debt – IF we do not borrow more, but we do to tune of $1.5 Trillion per year. 30 years is not an aggressive payment schedule. Still, to make these payments we’d have to eliminate our annual deficit of $1.5 Trillion. So we would need $500 Billion + $1.5 Trillion or $2 Trillion in total in taxes to start the 30 year plan. With US annually bringing in only about $2 Trillion in Treasury revenue ($900 Billion income taxes, $1.1 Social Security and other), we would need to increase taxes by 100% or income taxes by 200% thus beginning slow road to pay off our debt. Rising inflation and thus interest rates would make this much more difficult and expensive.
Conclusion: our debt is now ‘TOXIC’.
As I ended the book my immediate thoughts were:
We need strong leaders to convince our electorate that we must implement tough sacrifices to cushion the upcoming economic catastrophe.
Potential solution:
Across the board (thus fairly) cut 30% of our federal budget (it has grown 28% since 2008). This will save $1.14 Trillion. Then implement the revenue neutral and progressive Fair Tax, essentially tax reform largely based on taxing consumption of new products and services with prebates to low income). The Fair Tax will eliminate the IRS and $430 Billion in annual compliance costs. Add $340 Billion to $1.14 Trillion. At $1.48 Trillion we are close to the $1.5 Trillion annual debt.
*** Please read the book and blog to my site – Economics501.wordpress.com and also advice Congress that we are not economic illiterate and demand courageous action on their part.
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April 7, 2012 Addendum:
More Optimistic about Economy than Robert Weidemer per his book ‘Aftershock’ (aftershock-economy-book-review-Part 3)
Since I read Robert Weidemer’s first edition of ‘Aftershock’ in July 2010 (and then his second edition Fall 2011), I often think about his dire prediction about the high probability of severe economic catastrophe perhaps as early as 2013. However, I have always been more optimistic than him. For those unfamiliar with Weidemer let me briefly state that his prediction in 2005 about a financial crisis in 2008 was stunningly accurate. After this prediction in 2005, he was laughed at by CNBS in 2005. Weidemer is a successful investment advisor/economist. His economic analysis of the current state of the world economy is exhausting and thorough and well argued. I greatly respect his economic analyses. Below are two of my earlier analyses of his perspectives.
‘Aftershock’ Economy – Jan 2012 perspectives on confronting US debt
Weidemer argues that the combination of growing debt and tremendous increase of the money supply by the Federal Reserve (Fed’s balance sheet is almost $3 Trillion now but only approx $1 Trillion on 2008) plus lack of political resolve to deal with the debt will result in severe inflation and a US Dollar collapse.
I feel that we still have a definite opportunity to avert this. Weidemer correctly states that we need much more than a company such as Apple generating economic growth and jobs. He argues we need many more times the recent growth of an Apple. I think the US Economy is at the verge of explosive economic growth but we must act fast – within several months. Maybe we have until early 2013. What can result in significant acceleration of economic growth which will therefore decrease rate of our growing debt and satisfy our foreign creditors? Oil and natural gas exploration and development in the US.
FACT: US has 60 years of oil and 100 years of natural gas.
Developing that unimpeded would likely result in over 1,000,000 new jobs within few years, decrease our trade deficit, grow the economy in multiple ways, and lower energy costs. Add budget restrictions and we may be on our way rectifying our huge debt.
This is my view. What do you think? Please add your perspectives here.
Economics501, a VP at major Investment Bank, 29 years on Wall Street, ex venture capitalist
April 7, 2012
Please follow me on Twitter as @Economics501
economics501 
I think you meant “renouned” in the second sentence of the second para;
This is a must read for all. The Wiedemers, renounced financial advisors, in 2005,
Thanks I will correct later. BTW do you agree with Weidemer’s pessimistic view? I am slightly more optimistic. I still thin we have a small window to address our economy and debt but this window is shrinking. Adding 100 billion to debt with payroll holiday without any cuts shortens this window. Also shortening window: energy policy that does not allow us to drill. Look for $5 gallon gas to decrease GDP and thus increase our debt via less revenue to Treasury.
I enjoyed reading your review of ‘Aftershock’ by Wiedemer and others. I have a question for you. When Bob Wiedemer says in his book not to invest in real estate, does this include rental property? I think if people sell their homes like Mr. Wiedemer suggests then people are going to need rental properties. Also, if our government does not respond “fast” to the economic situation what do you think could happen to the United States economy. What will we be looking at if the president does not act quickly on the debt issue. You also seem confident that Romney will be elected president. I hope you are right, but do you know something I don’t ?
Shavona:
Thanks for responding and citing important points. Regarding Weidemer position on real estate I will reply as a pure blogger trained in economics, and not as a 29 year Wall Street veteran (many in IT):
I do not think it is a good idea to sell real estate unless one has extra or secondary residence, and rent instead. Keep your residence (equity). But then be very very careful if you are a real estate investor. Assess location and potential carefully. We may not have reached bottom in prices. Rental property may be a slightly better investment than residence at least in short term – 1-2 years with a struggling economy. On the other hand we have still a change to avoid economic Armageddon.
What could happen to U.S. economy if our Gov does not respond fast to our dire economic situation?
We cannot increase Gov debt by approx 10% a year while growing GDP only by 2-3% a year. We are in 4th year of this trend. If Obama wins election and Democrats maintain Senate and pick up more House seats then this trend will increase and eventually at some point our foreign investors will determine buying Treasuries is not a great way to maintain capital. Emerging markets such as Brazil may become more attractive.
Right now we have at least 2 wild cards: Europe and China.
Our Treasury rates remain low because the dollar right now is safe haven (at least in minds of most investors) due to Europe’s woes. Eventually Europe will have a solution or one will be imposed on most of Europe (ex: Germany + IMF) – 1 to 2 years, maybe in months. This solution will likely decrease the standard of living substantially in Europe except Germany, Sweden Switzerland. Then the attention will focus on the US. Dollar will no longer be safe haven. Interest rates will rise; Fed will print more, inflation will increase well over 10%. If our debt reaches 120% of GDP (close to 105% right now), US dollar may collapse and bring upon the end game Weidemer envisions.
However if Romney applies his Bain Capital expertise he will:
Jettison useless departments such as HUD, and Education (sorry a local responsibility), (HUD and Education cist $155 billion/year), and Energy Dept s would be eliminated. Money loosing Post Office and Amtrak would be sold. Freddie and Fannie Mae would be privatized. Pipelines would be built while energy from algae would be laughed out of the boardroom. Newly found oil and natural gas would be developed creating many jobs and increasing Treasury revenues. High-speed trains to nowhere would not be funded. Money wasted on electric cars that catch fire would be shifted to research on shale oil extraction technology.
I think our foreign creditors would be encouraged by the above (2013 – Romney’s 1st). Subsequently our odds of avoiding economic Armageddon would decrease.
I have no special insight that Romney will win. I am however doing all I can supporting his candidacy. I am optimistic that the American public will fed up with Obama’s devastating results and choose a successful venture capitalist who realizes that it is the private, not public, economy that creates self sustaining jobs, new industries and ancillary jobs.
Economics501
May 27, 2012
Thank you for the reply to my earlier questions. I have some specific questions I need help with and I would like your input. First, where are we at this time in the dollar bubble and government debt bubble. In your opinion how close are we to the popping of these bubbles? In the book ‘AFTERSHOCK’, again in your opinion how “right” have Mr. Wiedemer and the other authors been? Where have they been wrong? The book offers web site help with a subscription. Have you subscribed to this and if you have have has it been helpful? I own five rental properties in a college town, one is paid for the others have mortages. I also own a vacation home in new mexico and it is paid for. One other property owned outright is a rental property in South Texas that has housed a medicaid and medicare clinic for the past twenty years. I have a homestead in north texas where I currently live: has a mortage. In the book ‘Aftershock’ the authors seem to be saying sell these properties and take the cash and invest in short term government bonds, money markets etc. for now. I know you have touched on this with me before but I am still not clear on whether the authors are advocating selling all real estate (regardless of having a mortgage or not).Does it make a difference if the real estate is rental property, property owned outright, or mortgaged property? None of these properties have adjustable rate mortgages. I apologize ahead of time for my ignorance, but this has been a hard read and I am having to adjust my normal way of thinking as the authors have stated in their book. I am new to the stock market (started in 2007) not thrilled for obvious reasons (2008 etc.). Currently in monthly contact with money manager and have a small amount of money in Double Total Return Bond Fund and Doubleline Emerging Markets Bond Fund. Not married to these just following money manager’s advice because of low interest rates. As you can see I am invested in the real estate market more than any other market. Your opinions and thoughts are welcome. Would also like your thoughts on the authors ‘Best Bubblequake and Aftershock Investments’ such as LEAPS , shorting stocks using Bear funds etc. One more thing before I close. Have you noticed any of our political leaders or people in charge of our Federal Reserve paying any attention to the advice of the Wiedemers or Ms. Spitzer?
Shavona – sorry for no response; have been extremely busy. I will respond within few days. best, Ted
________________________________
Do you think the common voter understands the threat and will respond? What politician will stand up and run a campaign that he or she is going to cut Social Security and raise taxes? Unfortunately I have but little hope. Inflation has already begun and will compound at a time when it may be too late. Belief that the reaction may happen after the effect is a fundamental part of this book. Change may only occur when they are forced.
Thanks for your pertinent reply. My answers to your points:
No. The common voter poorly understands the threat of our debt. And yes very few politicians both understand the threat and are courageous in trying to deal with it.
I also do not believe US Govt inflation #’s. I believe their methodology is flawed. I rather trust http://www.shadowstats.com/ where we are at 6% now.
Per Weidemer inflation is to rise 18 to 24 months or more after the Feb substantial monetary expansion (2009-11). However it is difficult to time a major spike and subsequent US dollar collapse that is inevitable if current trends persist. We can not increase our debt by approx 10% a year while growing our economy at 2% (or less) indefinitely (we are in year #4). How much time we have left is unclear. The Woes in Europe may be propping up the US dollar for now and keeping the 10 year Treasury notes under 2%, thus delaying a sharply falling dollar.
” Change may only occur when they are forced.”
Per present trends, the betting is that the above will be true. However, “change” may be forced on us by our major creditors and the IMF and G20. Therefore, our politicians are cowards and totally irresponsible in NOT advising the public about “the most predictable economic debacle ever” as some have said such as Paul Ryan (his plan moves in right direction; even Simpson Bowles did too but BO rejected).
As long as we have BO our debt will outgrow our GDP growth and Treasury revenues and bring us closer to our day of reckoning. I hope our day of Reckoning is postponed long enough and that our next President (Romney) has time to fix this mess. Eliminating Dept of Housing and Urban Development and the Education Dept would save $155 billion (source Cato Inst,), being considered by Romney. Unleash oil and natural gas drilling (also favored by Romney) and watch the economy grow much faster. I hope our creditors remain patient expecting Romney to act quickly and decisively to the point where by 2014 our GDP growth exceeds our debt growth.
Below is a link about more waste we cannot afford, unfortunately passed yesterday (Ex Im Bank funding that leads to a ‘managed’ economy where the Gov ‘picks winners’ or political favorites:
http://news.ptest.investors.com/article/611078/201205101907/ex-im-bank-renewal-gives-bipartisanship-a-bad-name.htm
best,
Economics501
I agree with your opinions on domestic energy development and serious debt reduction by reducing the size and scope of government. Why is the main stream media still not reporting on this predictable collapse ? Do you think they make more money when their candidate is President ?
Thank you for your total honesty in writing all of this.
Alex – thanks for your comments and a very important question about the main stream media. I address this:
Why the Mainstream Press does not cover topics such as Rob Weidemer’s economic predictions? This is despite his spot on 2008 financial debacle predictions in 2005? CNBC laughed at Rob in 2005.
There are many reasons why. Below I list them.
1
Weidemer himself adds one significant reason. That is fact that even if one understands the high probability of severe economic debacle with collapse of dollar (tiny % of mainstream media comprehend thistle), the tendency is to be a “cheerleader” and state that recovery is coming soon. Media do not like being called gloom and doom pundits.
2
Except for Wall Street Journal, Investors Business Daily, CNBC, Fox News, virtually all journalists are economic illiterates. They can not understand a Weidemer economic analysis even if they tried hard.
3
These journalists abhor strong commitment to capitalism. Most are socialist leaning ideologues. When they hear of economic solutions of austerity or government cuts they quickly tune out.
4
This idealism carries over to the mainstream media’s balance sheets. They care less than other industries with regard to profits. Or even as they loose money these ideologues feel that in the long term their views will be held in high regard and generate more profits. In sum this industry has some of the least business savvy executives.
What to do?
Answer is to call out our mainstream media where they fail as in this instance and many other times with regard to economics. Write letters to the editor and join their blogs. Do the same with the alternate media too as Weidemer is not nearly as well covered as he should be.
Re: Aftershock Investments (note disclaimer):
A subscriber posed some investment considerations in anticipation of the possibility of Weidemer’s economic scenario. Here is part of my answer ….
Aftershock Investing June 2012
Here is a more detailed answer regarding real estate investments per decent probability of a dollar collapse within few years per Robert Weidemer.
First of all I write as a blogger interested in economics and one who has read the 2 Aftershock books. I am not an investment adviser. I have had 29 years of essentially Wall Street IT career. I had a brief part time stint as a high tech analyst for a large bank’s principal investments business. Hence I note I have been an ex venture capitalist. I am currently an Investment Bank VP managing equity market data for Production Mgt. Therein lies my disclaimer. So I will respond as a serious economics blogger.
Real estate investments in college town: I like this investment, feel that education and student loans will last longer and not be as abridged (budget cuts) as other ‘entitlements’. Education is high priority for most and likely will remain so. I say this even if my proposal to privatize student loans happens.
all mortgages should be fixed, given inflation expectations.
vacation homes fully paid for: How often you use? How attached are you to it? How much do you need this? Given expectations that housing overall may be 1-3 years away from bottom one should consider selling non essential housing with expectations of purchasing similar in 1-3 years. Nice to have some extra cash on hand to invest in precious metals to hedge anticipated upcoming inflation.
I like precious metals better than short term bonds. They have better upside potential.
Selling own residence may be change and stress one may want to avoid. even if selling now and renting then buying later. Too many moves for me, my wife and daughter. I stay put.
Overall rental property likely better investment than residential: Hence this is an argument to keep.
Medicaid and Medicare clinics – good argument to keep especially with fair revenue stream, and especially if Romney wins and takes Paul Ryan’s plans to save both programs.
I like LEAPS given extra time frame (over year) to assess investment worth. I expect consumer staples and discretionary spending stocks to decline. Hence buying PUT LEAPS on some large caps may be attractive.
I respect Weidemer very much and deeply enjoyed his quantitative analyses. However I am still somewhat optimistic that we can avoid economic catastrophe. Best case scenario is a Romney win and an all out drive to develop our newly found energy resources. This can over few years generate millions of jobs. Treasury revenues would then grow faster than debt.
Weidemer states we need many Apples to jump start this economy. Not sure if this energy scenario comes close to what Weidemer was referring to. However, after Europe is stabilized (expect severe adjustments to most European country fiscal measures imposed by IMF and G20 and Germany in about 1 year), attention will focus on US debt. If foreign investors witness a reversal of debt growing much faster than Treasury revenues, then US may avoid a dollar collapse. Or, if Romney wins but still disappoints, then US dollar collapse likely will be much less severe than an Obama win given Obama reckless fiscal discipline.
My personal view is that Romney wins. But right now this is almost a 50-50
If he further governs with a Bain Capital mindset he will eliminate the education and HUD depts and maybe energy. That is at least 155 Billion savings per year. What are odds that Romney greatly pleases foreign investors? I say 65%. Odds of him beating Obama ? I say 55%. Multiply both numbers and we get 36% of ideal outcome, 45% of worse case and 19% in between.
Two more points to consider: our economy still produces goods that decrease in price. and banks have released very little of the extra 2 billion of quantitative easing by Fed. The money supply has not been growing as rapidly as I think Weidemer envisioned. Recall his projected 18-24 month lag before inflation is to significantly hit. This lag may take longer. Hence we may have another year to get our economic house in order. And if Romney wins I think the odds are 65% he will be successful.
There are still many variables in play that can significantly impact many investments long term. I greatly appreciate your time in analyzing Weidemer, responding to my blogs, you’re your keen points and interest.
I think sanjuan meant “renown” as the correct word in your opening statement. I looked up “renoun” in dictionary.reference.com and got the following reply:
No results found for renoun:
Did you mean renown?
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I read my first doomsday book in the mid-1970’s, about how the widespread implementation of plastic credit cards would bring about the end of the dollar as we knew it. The dollar, of course, didn’t fall in the 1970’s because of the availability of widespread consumer credit.
I agree with the authors of Aftershock, that the dollar could fall today if we continue reckless government spending. I can’t, however, believe that the citizens of the USA would stand idly by and watch if the government allowed the dollar to be devalued over three successive years of 100% inflation.
I’ve seen monetary doomsday books under every economic circumstance ever since my first one, and the show never plays out the way the scriptwriter expects it to. We haven’t seen a big explosion, just a series of pops. The 2008 pop was the worst because the Government didn’t allow it to happen 5 years earlier.
My basic understanding of bubbles: Investors move their hard-earned money to where it can get the best rate of return. When there are too many investors in any particular investment, the rate of return is spread so thin, it is virtually nothing. Then the bubble pops.
Early money into the housing bubble came from the dot com bubble that popped in mid-2000. The housing bubble was predicted to pop in 2002 and 2003, but real-estate prices kept going up… because some socialists in government said it wasn’t fair that people with no skin in the game couldn’t participate in the bubble. So our elected officials forced lenders to provide unqualified borrowers with cash to buy over-valued homes. And then the bubble burst. Everyone’s home value took a hit & great wealth was lost. The worst hit were NOT the last in the game – they had nothing to lose. It was the banks (and their investors) that were forced by the government to run their businesses in a way that made NO sense at all in a capitalist system.
Seems that once the government gets out of the business of trying to prevent the bubbles from popping, the better off we’ll be. Yes, there is short-term pain when a bubble bursts. But not catastrophic failure like we’ll see if we continue to patch every bubble that needs to burst when it is no longer a wise investment.
Yes renown meaning high repute. I greatly respect his economic analysis. I am still somewhat more optimistic than Weidemer is but this window for us to act is diminishing. I hope Romney wins and starts all out in developing our newly found natural gas and oil. This can jump start our economy by estimates of 1 to 3% GDP which can make huge diff especially if we seriously cut spending.
Dear economics501,
Did you see the video where Mr. Steve Forbes, Mr. Bob Weidemer, Sean Hyman, Mr. Rickards(sp.?) spoke on Currancy Wars? I realize there is a book to sell but I would like to hear your thoughts if you were able to see video.
Shavona: I did view the video Aug2. Weidemer did not have a major role. However he did agree that the current total debt and economy which he exhaustively analyzed renders US very susceptible to loosing in a currency war. In the video the most chilling potential prospect was China directing that its hedge fund investments dump securities denominated in US dollars causing a dollar collapse. This is a real threat. Time all of our Government leaders act on this. How? (1) entitlement, thus debt reform, (2) economic growth via taking advantage of our newly found vast natural gas and oil reserves (and add 2% to 3% to GDP per Investors Business Daily), (3) major tax reform with Fair Tax most promising as it encourages success and investment.
best
Economics501
Aug. 10, 2012
Shavona — also .. I did not spend much time assessing the books and publications in the video. I actually stopped watching the video after about 1 hour. However, the publisher of AfterShock contacted me several weeks ago and asked that I review a pre release of a new book that will provide investment advise as result of Weidemer’s Aftershock analyses. as soon as I get this book (hopefully within weeks) I will read in few days and post a review on this blog.
Dear Economics501′
Thanks for your comments on video. I stopped watching after one hour too. Question- concerning China dumping securities … causing dollar collapse. Explain entitlement thus debt reform. I understood the others but not this one. Looking forward to your blog on the up coming new book.
Shavona
Shavona – I was drafting a post for entitlement and welfare reform today. I paste it below. See section Pure entitlement reform in 2nd half of this below. Thanks for your interest.
Best
Entitlement Reform (and Welfare Reform- Again) are Long Overdue
More than 100-million Americans are now receiving some kind of federal welfare, and that does not count Social Security or Medicare. In 2000, 34-million Americans were on Medicaid; now the number is 54-million. In 2000, 17-million of us received food stamps; today that number is an astronomical 45-million Americans. Some Americans need help, no question about it, but what President Obama does not want to articulate is that there is a shift in how many Americans sees themselves. It used to be that self-reliance ruled, but now many of us feel we are entitled to free stuff because it’s not really our fault if we’re not prospering. There is a tremendous sense of entitlement among some Americans who simply have not succeeded. President Obama is encouraging that mindset by putting out a narrative that says wealthy Americans and business people are not paying their ‘fair share,’ even though all the stats show that the affluent pay the vast majority of federal taxes. In France, the new Socialist president wants to tax the affluent at a rate of 75% so he can dole the money out to French citizens who don’t have very much, thereby ensuring their permanent support. Do you see a difference between the French Socialist strategy and what the Democratic Party wants in the USA? I don’t.”
We also have 15-million people in the country that we didn’t invite and most of them don’t have high school educations. We know these are people who will be dependent on welfare for many years to come. We also have a failing education system and this administration has not been able to create the same level of jobs as four years ago. Obama is not just the ‘food stamp president,’ he is the ‘Social Security Disability president as well.” THIS MUST BE REVERSED! OTHERWISE THE US DOLLAR WILL EVENTUALLY COLLAPSE. I PREDICT THAT THIS WILL HAPPEN BT END OF 2014 IF BO IS REELECTED.
Pure entitlement reform
Social Security, Medicare, and Medicaid are exploding in growth. Entitlement reform is absolutely necessary to reduce our growth of debt, let alone reduce our debt. Otherwise foreign creditors will soon balk at financing our exploding debt. The Ryan plan addresses this by offering partial privatization of Medicare. This will decrease our debt growth and ‘maybe, maybe delay (hopefully eliminate) our day of reckoning … with foreign creditors. More needs to be done. This should include gradual privatization of Social Security to all new entrants and to those willing now ( I would immediately jump to manage my Social Security portfolio and I am 56)
In Factcheck we learn … that the main 2 entitlements continue to grow and are bankrupting our budget.
http://www.factcheck.org/2011/07/fiscal-factcheck/
The biggest share of federal spending now goes for Social Security (20.4 percent in 2010) and Medicare (13.1 percent), the two entitlement programs that big majorities of Americans want to protect from any reductions, according to a recent poll. Together these two programs for senior citizens consume more than one-third of spending, far more than national defense, which accounts for just 20.1 percent, despite the increases of recent years..
In sum, entitlement reform is a must in order to reduce debt growth to give our economy more of a fighting chance to succeed.
Economics501
Aug 12, 2012.
I always hear tell of this pending armageddon and although I am skeptical, it would be foolhardy not to listen. At every turn, advice is different and there is always a BUT to every side. In all my readings and searchings, I have not heard one really solid way to preserve wealth and brace for this economic meltdown (let alone profit from it).
For example: Precious metals? On one hand, gold stocks / mining / etfs should go up if these rise correct… BUT WAIT, you should have physical coins, ones you can use for currency… BUT WAIT, you cant really own the coins because the government could confiscate them… BUT WAIT, if you own nurismatic coins they superscede that and you will be happy and wealth preserved…. BUT WAIT dont believe those guys who sell them because the govt does not need to “exclude those coins from the next confiscation”… SO, you should buy physical coins / metals and store them in Hong Kong or Switz or Cayman Islands….
In the end, if govts start to confiscate your shtuff… do you really think your money is safer in China than in America or Canada or Switzerland? For once, I would love to hear some actionable advice that makes sense, doesnt sound like a poker “all in” bet and hedges against many of the possible outcomes.
new yawk – Thanks for raising your points, all relevant. We may be in uncharted territory. Hence, investment advice is difficult. I personally like owning precious metals and coins but as you point out the government may confiscate. Recall however that Wiedemer predicts the US will be better off than most if not all during this adjustment period after the US and most of global economy tanks. Therefore it behooves one to maintain and expand their workspace skills for the present and future. Technology gains will continue and may even accelerate. Professions in health services will likely be in strong demand. Therefore I recommend all to continue developing job marketable skills. Stay health too. Buck the growing trend to obesity. Maintain good nutrition and keep stress levels down.
I still feel we have an opportunity to avoid a dollar collapse but the window of opportunity just got tighter with QE3 (inflation ahead) and Middle East turmoil (trade deficit can increase substantially if oil flow is disrupted). Finally an Obama victory will increase probability of dollar collapse given his propensity to increase spending significantly and grow the debt.
BTW I will be reviewing a pre release of Weidemer’s next book which will focus more on practical investment advise in anticipation of an economic debacle. I will review and post immediately.
Please follow me on http://www.twitter.com/Economics501
May I suggest a great adjunct to the Aftershock reading: Senator Coburn’s book ‘The debt bomb’. Highly educational about the insider problems in Washington, especially on the ‘careerism’ of the politicians. The remedy would be term limits, i.e. reducing the need to solicit reelection funds from corrupting sources. My personal add-on would be total abstinence on bail-outs, which would cut the Madoff mentality of big financial houses. Remember Citicorp has had three of the bailouts already. Coburn has more good thoughts on economic remedies. He certainly had lots of exposure to this being part of the Simpson-Bowles commission. May be Ryan/Romney will go for honest action.
I read Coburn’s well researched and analytical book. Yes I agree it ties into Aftershock.
I liked the hypothetical but very possible scenario he detailed that could start a dollar collapse with severe ramifications in few hours. 1 day a large Japanese mutual fund concludes holding US dollars is very poor strategy. They start dumping dollars. China takes not and orders it’s hedge funds to start selling much of its 2 trillion of US securities. The it is off to the races and uncharted terrify.
Thus this book is a great read for those unconvinced about our exploding debt. It is real and must be addressed ASAP. BTW QE3 and pending QE4 increase such a possibility.
In sum great read plus reasonable solutions.
Thanks much for your comments.
Follow me on twitter @Economics501. I tweeted 33 times during the 1st presidential debate, had much fun.
Shavona – here is book review latest Aftershock Investor book – https://economics501.wordpress.com/2012/10/21/aftershock-investor-book-review/
Sorry Folks, I just can’t buy the doom and gloom scenario being fostered here. I am reading the book in an effort to educate myself, but the author’s motives are somewhat suspect. If he were more of an independent and did not use a right wing suspect news organization to promote his products, I could appraoch the readings as being from someone whom intended to inform rather than to promote a political agenda. In fact, this very site itself seems to have far right leanings. By the way, I am truly an independent whom has profound dislikes of both parties. ( Just wanted to get that out of the way before the partiscenship started.) Now that the president has been re-elected, does that now throw your other predictions into doubt? Or are they now guranteed to become a reality where we descend into a financial apocalyspe? And what if we don’t? Does he remain a guru or does he join the ranks of being an opportunist? In addition, there were other’s whom also predicted the economic colapse who are indirect oposition to the author as to the pending stste of our economic future. Can someone tell me why he is right, other than his politics, and why the others are wrong? In addition, his assumptions concerning life insurance are extremely off base. What he defines as to how these policies are funded are only based on assumptions that even the state insurance commisioners have debunked. The idea that term is where your money should be placed, fails to consider a long term strategy for wealth accumulation, asset protection, and death protection. It also does not account for the fact that term policies increase in cost as the insured ages and may be cost prohibitive at the time when they are needed most. His argument sounds like he came from the school of “buy term and invest the difference.” The problem is, that that strategy has failed most people miserably. His assumptions about foreign currency also seem to be incorrect as foreign markets continue to struggle and see the US dollar as a safe haven. I admit that I am not a celebrated economist, but there are those equally celebrated with proven track records who disagree with the author. So who is right? As I stated, I am reading the book to gather as many perspectives as possible, but charts don’t convince me of the author’s credibility. While hisp rior predictions about the melt-down were indeed accurate, many of his detractors were equally as adept at forecasting and they now dsagree with the author’s conclusions. The book is interesting and I will attempt to test his hypothesis, but are his motives to educate or to profit from fear mongering? As of yet I cannot tell which one is correct.
Jeffrey thanks for detailed feedback. I respond to some:
I do not think Wiedemer is very partisan. He has stated on number of occasions that there would not be much difference between Obama and Romney or between Dems and Reps.
If you consider my site as far right so be it. My most passionate politics concerns economics and I believe in free market capitalism as the best road to prosperity.
Like you I dislike both parties. The Democrat elites are emotionally very anti business. The Republicans have been wimps and weak in detailing economic policies.
What may throw Wiedemer’s predictions out? A combination of all of the following:
US drills gas and oil to the max on public and private land and launches tremendous energy boom almost wiping out trade deficit and generating 1-2 million jobs just via energy boom (Obama would have to change his policy drastically)
US freezes and cuts entitlements and defense (large cuts possible here). Just as private business must streamline in tough times so must Gov.
Means test all welfare and entitlements. Decrease Dependency on Gov class that is exploding our debt.
US decreases Gov spending back to 20% from 25%. This may then launch broad economic revival by private sector and generate much more revenues to Treasury.
Fed starts to withdraw $ expansion and contracts while economy continues to rise.
Wiedemer himself month ago stated in a Bloomberg interview that if the last point occurs he is wrong.
No one knows if he is right. He makes a persuasive case though. I like the exercise of how we can pay back our debt in 30 years but lack political will even to try to cut back by 10%. Bottom line is that our debt is on an unsustainable course. At some point in time our foreign creditors may balk at buying our debt. If that happens all hell breaks loose. But then after some serious suffering, a new economic prosperity is likely as the US would no longer be held back by immense debt and a Nanny state. So Wiedemer is not all gloom and doom. Also I was optimistic Romney would have a fighting chance of preventing an aftershock economy. I feel Obama reelection increases odds given his policies to increase spending and increase taxes. Increasing taxes decreases Treasury revenues as the economy slows and the tax base becomes weaker. And Reps may cave in on taxes. So rt now the economic outlook is bleak. I hope and pray though that Obama sees a great opportunity in internal energy production.
Your comments about insurance are interesting. Personally I am Leary of investments that may soon loose value so I prioritize precious metals. Please do not take this as advise as I cannot advise on this site. I have 30 years in Wall Street with majority in IT Mgt .. Also has stint as a venture capitalist. That was most cool.
I was very happy to have established a relationship based on economic analysis research with Dr. Alesina.
** On Dec 2, I emailed Dr Alesina …
I am very interested in your research and analysis regarding spending cuts vs tax increases. See below is a post where I reference analysis you have conducted. Recently I have read comments about your work in Investors Business Daily and Wall Street Journal.
Please advise if it would be possible to share more of your results. Specifically, in your analyses of spending cuts long term impact on economic growth, at what stage in the economic cycle were these cuts made — or what was the distribution? for example — 70% of nations cut spending following at least 2 quarters of GDP rate growth of 2% or less but at least one year after recession, 20% cut while economy was in a recession …. 50% cut spending when public portion of debt was over 60% of GDP (just hypothetical #’s). There may be many variables that tend to yield statistically relevant correlations or may not.
I am an economist by education but investment banker / electronic trading IT Mgr by profession during my 30 years on Wall Street. I am very analytical, use statistics every day, and extend this to my blogging of economic issues. Right now I argue that tax rate increases are not likely to increase Treasury revenues.
I understand much of your work is very proprietary and likely confidential. However if you can share just a little more, I would most appreciate.
Dr Alesina replied that precise answers with significant confidence levels were difficult. In fact he went on and stated not to trust anybody who provides such answers. He referred me to his web site which is publically available for more research. That’s great! I’ll have more about the practical applications of his research and analyses going further.
Sorry to see this thread stop. Much worthwhile discussion.
Larry – Please subscribe to Economics501.wordpress.com and follow me on Twitter @Economics501. I continue to keep alive various perspectives regarding Wiedemer’s analyses and predictions. I keep in touch with him on Twitter. We both follow each other. One important point from approx month ago (where he confirmed my belief) is that European fiscal woes are likely delaying a US Aftershock economy. Also – yes I will revisit the thread you refer to below. Prof Alesina is a source we should take advantage of and further the debate about how to best grow our economy and reduce our debt. Thanks for the reminder.
I fail to see where the CEO’s and the heads of big banks/ big oil give back any profits gained by hacking the system when “correcting” the market occurs besides putting it on the backs of the poor. Enlighten me please.
Adreamer82 – thanks for reading the Aftershock book review and your feedback. Regarding big banks and profits: in my 30 years Wall Street career, 6 were with 2 investment banks, the other 24 were with 2 stock exchanges and 2 brokers. I am currently still in Wall Street career. It is not EZ to increase let alone make profits especially over past several years. Profits however are a prerequisite for creating jobs that self sustain themselves and create additional ancillary jobs. As an ex venture capitalist I can tell you that we risk capital to create or expand new companies that will expand and create additional jobs. We do this subsequent to exhaustive analysis to best guarantee a positive return on investment. After all loose capital, take losses, find yourself jettisoning jobs.
“Putting it back on the backs of the poor”: banks unjustly got a bad rap on this. Facts are that the Great Recession was largely caused by Government interference in the housing market, specifically in threatening to challenging banks in court if they did not lower loan standards. Banks imploded. Where were the profits? Gone. Same goes for 2008-09 severe job losses.
“Correcting the market” is something we let the Government do too much of. It leads to fraud which then impacts the poor more than others. Banks were compelled to lower loan standards and thus many poor in the end lost their homes. Look up in the NY Times where starting in mid 90s Government encouraged banks to securitize risky loans then off load to Freddie Mac and Fannie Mae. Banks resisted this. But then Bear Sterns decided to enter this market and try to increase profits as a result. For several years their artificial profits increased significantly but then they met their day of reckoning.
The closer we come to free market capitalism the greater our capacity to grow the economy to the advantage of all. Government and Bug Business should both take note. Too many big companies and industries have secured special tax breaks close to almost $150 billion per year. These breaks are largely a waste. It is hard to prove any provide a net increase in GDP or jobs. This is crony capitalism. Many large companies seek the security of special relationships with Gov so they will not have to compete as much against their smaller, nimbler, creative, more innovative competitors. Then we all loose as private start ups and small companies are the key drivers for increasing jobs.
As a senior in college I was a strong Leftist. I thought I had the perfect job year later – a UDSA auditor with Child Nutrition Programs. However, I encountered $millions in fraud and waste and an incredible disregard for tax payer $ financing these programs. That turned me into a strong believer and champion of free market capitalism and after 5 years with USDA I started a very enjoyable Wall Street career. Free markets benefit all and offer the best hope of growing the economy so that many of the poor who have lost their motivation due to decades of social welfare policies, can hope to regain their drive to thrive and excel.
I will have another Wiedemer AfterShock economy posting (about Obama economic impact on prospects of a severe AfterShock economy) in about a week.
Best Regards,
twitter@Economics501
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