In the spring of 2006, my father and I predicted a financial crisis would hit the US. (We assumed that this crisis would be driven by dollar depreciation, which has not yet occurred). We continue to feel strongly that the dimensions of the coming crisis are still not grasped by most Americans. In January 2008, I predicted the Dow would fall to 7000. Given what has now occurred, our concerns were mild. Yes, an estimated $60 tril of paper wealth has been destroyed globally, but there is much more to come.
Over the next five or ten years, the US will sink into a deep recession. Unemployment will rise dramatically as the restructuring of the American economy proceeds. We see the Dow falling to 400. Yes, four hundred.
Given the endless parade of bad news and bearish forecasts for the economy, it may seem that the worst has already happened, and there is nowhere to go but up. Indeed, some analysts (for example here and here) have called a market bottom. The US consumer is not spending, unemployment is rising, the highest officeholders in the land call it the worst situation since the Great Depression... you might say, how many other shoes are there waiting to drop (or be thrown)?
What has not yet occurred is a serious threat to the dollar's status as the world's reserve currency. That threat will come, for the world cannot continue to finance American profligacy. When the eventual flight from the dollar occurs, it will cause much worse damage even than the unbelievable carnage in asset prices (click here for a chart of the Dow over the last year) we've already seen.
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2 comments:
What level do you believe unemployment will reach? Do you think this economic crisis will change the U.S.'s status from the premier world power?
I don't have an exact projection for unemployment; I do think it will rise considerably before a recovery is reached. As for the status of the US, yes, it will decline in the sense that we will enter a multi-polar world economic order.
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