Dr. Doom, I Presume???

 

 

"The evil of the world is made possible by nothing but the sanction you give it"

Ayn Rand

Atlas Shrugged

1957

 

Of all the current "gloom and doomers" that are in the press today, nobody is called "Dr. Doom" more than Nouriel Roubini. He is an American economist with a PhD that is not only referred to as "Dr. Doom", but also "permabear". Why? He is one of the few in academia who does not drink the kool aid. He has a very bad habit of being right much more than he is wrong.

Here is an example of his track record of late. As early as 2005, he predicted the housing crash. The crash would be so steep and severe it would affect the entire economy. In 2008, history proved Dr. Roubini right.  In 2006 he doubled down on his 2005 prediction by telling the International Monetary Fund that a housing crash was coming soon and it could affect the entire world. Again, in 2008 when the crash came, it not only affect this country, but also sent ripples across the globe.

One thing I should make clear before going any further. This is not a partisan hit piece. The problem we got ourselves into resulted from a bipartisan cooperation. We can argue which side had greater culpability, but that would just be an academic exercise. The bottom line is this - what we saw in 2008 was only the first jolt of a massive economy coming to a stop. There are economic soothsayers such as Dr. Roubini and Peter Schiff (who are light years brighter than I) who say the worst is yet to come, and it will come soon.

In July of this year, Dr. Roubini said the following about the economy in 2013 (paraphrased):  "Tax increases and spending cuts will push the United States into yet another recession. This, combined with Europe’s debt crisis, China’s wonky economy, and a potential military presence in Iran, could shove most of the civilized world towards a complete collapse. The problem, of course, is that we’re quickly heading towards the point of no return. Unless something is done immediately to turn the tide, turmoil seems inevitable."

Dr. Roubini is not alone in predicting the other shoe is about to fall. Earlier this year Peter Schiff had this to say: “All of the people who were 100% wrong [back in ‘08] are saying that everything’s OK [now]. I am telling them they didn’t solve the problem and are making it so much worse. I didn’t get lucky, I just understood the problem, and we are going to get another big one coming soon.” He went on to say that the next recession is not necessary going to be a bad thing if we let it change our economy from a debt and consumption economy to a production based economy that creates real wealth and jobs. Schiff also said  “In a deflation[ary recession], real wages will rise because the cost of goods will fall faster.” What I interpret from this is the following - the next shoe WILL drop in either 2013 or 2014 and how we handle it will determine our fate. As he said, as painful as this will be, it could end up being a good thing by getting us back on the right track.

There are others I have read which predict very similar outcomes in the next year. Looking at this strictly from an intuitive point, one would think that doing nothing by letting our debt go up over $1T per year is doing us more harm than good. In addition, with our total debt now over $16T, we could be very close to the tipping point.

My final point is this - for years now we have listened to Dr. Feelgood whereas we should have listened more to Chicken Little. The end may not be in sight, however the next jolt to our economy might feel more like a car wreck than the flat tire we had in 2008. All we can do is elect the right people to help soften the blow as much as possible with the right policies. In addition, protect your assets as best you can, stay as informed as possible, be alert, and prepare, prepare, prepare.