Yesterday I finished a book called "Wake Up! Survive and Prosper in the Coming Economic Turmoil," which I have already blogged about.
I regularly read non-fiction books, and rarely mention them here, but this one has grabbed my attention. Since reading it, I have been looking around for other opinions on the state of the US economy. A lot of people out there are very angry and/or worried.
This July article in a Canadian website called Global Research takes a particularly glum view:
Here's how I would put it today: our economy is on an artificial life-support system, a barely-breathing hostage in a lunatic asylum. That asylum is the U.S. and world financial systems which are on the verge of collapse.
Before reading "Wake Up", I thought that the American economy had recovered from the dot-com bubble, thanks to some Keynesian government intervention. Not so. It seems the Fed replaced the dot-com bubble with the housing bubble, and Americans (both citizens and government) continued to live beyond their means. From the same website quoted above:
As everyone knows, the Federal Reserve under Chairman Alan Greenspan used the housing bubble, like a steroid drug, to pump liquidity into the economy. This worked, at least for a while, because consumers could borrow huge amounts of money at relatively low interest rates for the purchase of homes or for taking out home equity loans to pay off their credit cards, finance college education for their children, buy new cars, etc.
But what goes up must come down, eventually. Americans have been spending money they don't have for over a decade. The US national debt now works out at around $30,000 per citizen. Someone's got to foot the bill. The dollar is sliding against other currencies, particularly the euro.
But Europeans will not be able to delight in a collapsing dollar (the crisis in the subprime market is only the tip of the iceberg -- the rest of the US mortgage market will soon come crashing down), since Euro exports will be hit hard too. And many European countries, particularly the UK, are also overborrowed. We may be entering a period of social and political turmoil -- depression, unemployment, civil unrest, wars -- triggered by a global economic crash.
Chandramohan Sathyanathan, an Indian blogger, suggests that a US dollar collapse is highly possible, citing the country's huge trade and budget deficits.
The collapse of the dollar will throw the world into a global depression. Those nations with large external debts will not be able to trade sufficiently to earn the income to service their debts, and will slide into bankruptcy. The economies of New Zealand, Australia, Canada and the UK will also totally collapse, as a result of their indebtedness and not being able to service their borrowings. Crime will become rampant. Law and order will cease to exist. Disease will become widespread.Though Asian economies will also be affected....they will recover after a mammoth turmoil.
So what do the authors of "Wake Up" advise? In short, be prepared for huge socioeconomic change on a global scale. Get out of debt as fast as you can. Don't take on any more debt. If you own property in the US or any other rich western country, consider selling it.
If you own property outside the US, consider switching your mortgage to a US dollar mortgage (the logic being that the US dollar amount is going to become small, relative to other currencies).
Of course, it might never happen. But will it hurt to be prepared?