REFLEXIONS
The Coming Storm
in the Financial Markets
By Robert Ross

 


                                              
“In the fall of 1991 an event took place which had never been seen in recorded history. A powerful storm was developing off the northern Atlantic coast. It was a force of nature so intense that it  would be unlike anything the present world had ever known. Nature was about to unleash a force and fury never before witnessed in the collision of three potent storms at one moment in time. The dynamic power of that collision would be propelled by winds of 120 miles an hour, creating waves ten stories high.”
— From: The Perfect Financial Storm series by Jim Puplava

Jim Puplava, in his Perfect Financial Storm series, used the  storm off the east coast in 1991 (made into the movie The Perfect Storm) as a metaphor for the possibility of a coming financial crisis. A financial crisis the likes of which this country has never seen before. (www.financialsense.com)

Three storms gathering — colliding — creating a huge storm — a perfect storm. Financial elements gathering — intersecting — all at the same moment in time — creating the perfect financial storm.

Although the elements of this financial disaster are just over the horizon, parts of the storm can already be seen today, if one looks. Shall  we take a look . . .

The dollar has plummeted dramatically against the euro in the last couple of years. If this drop continues (which most analysts predict), the dollar may no longer be seen as the world’s reserve currency.

And the U.S. may no longer be seen as a safe haven for foreign investment. Clouds on the horizon . . .

The NASDAQ crashed in the year 2000 with a staggering seventy-five percent drop. This historic drop, say many market analysts was the beginning of a bear (down) market, which will take years to express itself.

The budget deficit (the amount spent above taxes collected) is expected to approach six-hundred billion dollars in the coming year. And personal debt has risen to levels never before seen in our country.

The national debt has grown during these last few years to seven trillion dollars, an amount that is beyond comprehension.  A staggering budget deficit, a national debt so large that it boggles the mind, it is no wonder the world is losing faith in our currency.

The price of gold has also risen precipitously in the last two years. A rising world gold price is traditionally a signal of monetary distress and price inflation. The clouds look more menacing . . .

Recently, threats of a possible terror attack had agents scouring cities across the U.S. with radiation detection devices. Do you see a storm on the horizon . . .

There’s something afoot. Something’s brewing . . . there’s an unease that permeates the global financial markets. The excessive drop in the dollar, and the rise in the price of gold are lightening flashes in the distance. Global terrorism threatens economic stability. Are we headed for a financial storm, for that perfect financial storm that Jim Puplava  has written about?

In the world of economics, statistics are bandied about like hail hitting an aluminum awning during a hail storm. A lot of noise is heard. Noise that can sometimes frighten. And noise that can sometimes portend serious damage; damage like our trade deficit, four hundred and fifty billion dollars and growing; serious damage like the national debt, seven trillion dollars and growing; sobering statistics like the stock market at price earnings ratios that some say are extremely unhealthy. And then there’s the  unacknowledged problem of inflation, which has reared its head with a vengeance in the housing market.

Make no mistake, when you add all of this up, the falling dollar, the historically low interest rates, the enormous national and personal debt, the rise in the price of gold, and the threat of another terrorist strike, one can only conclude that turbulent times are here and lie ahead.

Umbrellas
As this article is being written, the Iowa Democratic Caucuses have concluded. Candidates declared that solutions are at hand. Raise taxes, keep taxes the same, rescind the tax cuts, create a national health care system, improve education, “a new day is at hand,” were rants heard night after night leading up to the caucus vote. Solutions were touted; solutions that can be compared to offering an umbrella with a hurricane approaching.

We have reached a point in our culture where long-term, difficult economic solutions are not acceptable.

We look to the quick fix. But, economies, given the freedom to breathe, should ebb and flow,  expand, and then wrench out the excess waste by contracting. Economies are (or were), in many ways living organisms.

Political leaders see their roles as doctors with a medicine bag full of remedies. At the first sign of a problem, our leaders are expected to offer a solution. We demand it of them. But in some cases the patient should to go home and experience the cold or fever. Build up the immune system for the next disease. Unfortunately, this kind of thinking is unacceptable.

Storm Shelters
If one lived in a region of the country where hurricanes were likely, it wouldn’t make a lot of sense to live in a trailer. We live in an era where the metaphorical hurricane is likely — highly likely. The trailer, the metaphorical trailer, in this case, is a home with a weak foundation.

Personal solutions are at hand. Perhaps the best solutions are to view the current  volatility in the markets — as storm warnings. Check your foundation. Are you able to withstand a big storm? A bursting of the real estate bubble?  A seventy-five percent drop in the stock market? A serious round of inflation? The clouds are on the horizon. The winds are beginning to pick up. Check your foundation.

The weather forecaster has given us warnings — it is up to us to heed these warnings — hoping  for the best — and preparing for the worst. That’s all we can do!

Robert Ross can be reached at: SanDiegoRoss@Yahoo.com
Copyright 2004  by Robert Ross, all rights reserved




Return to the March/April Index page