Synopsis
While most people ignore the warning signs and fail to connect the dots, those who move quickly and correctly can position themselves now to profit from what will be the biggest financial opportunity of the decade.
What is America’s Bubble Economy?
It’s an unusual set of simultaneous, linked financial bubbles that helped create the prosperity of the last 25 years and is now keeping our economy afloat (see Chapter 1). Reasonable people needn’t be blinded by wishful thinking nor consumed by doom and gloom. Smart, reasonable people can come to their own reasonable conclusions and prepare now to be among the wise few who will capitalize on what others initially miss. Here is the most damning evidence, bubble by bubble:
Massive Government Debt Bubble – The federal deficit in 1980 was about $50 billion; now our total government debt is more than $8 trillion. For 2 decades, larger and larger foreign-funded deficits have helped boom the U.S. economy.
Overvalued Dollar Bubble – In the last few years, Japan and China have bought more than $1.8 trillion worth of U.S. dollars. Why? To keep the value of our dollar high so we can continue buying lots of their exports. What would the dollar be worth if they were not propping it up? What will it be worth when they can buy no more?
Astronomical Trade Deficit Bubble – Americans buy far more from other countries than we sell to them. That means they get our dollars and we get their stuff. This trade deficit is now nearing $1 trillion annually. Foreign investors use those dollars to buy our stocks and bonds, keeping their values high. Foreign investors need to invest more than $2.5 billion every day just to maintain the trade deficit. If they don’t, interest rates will rise and the dollar and stock market will fall dramatically.
Overpriced Real Estate Bubble – Housing prices up 80% since 2000, while incomes rose only 2% during same time period. 74% of all new jobs created in the five years prior to January 2005 were due to the housing boom. The Real Estate Bubble is key to boosting our current economy.
Irrationally Exuberant Stock Market Bubble – Dow up 1000% from 1982 to 2000, without an equal rise in real corporate earnings. By comparison, the Dow rose a more reasonable 300% from 1928 to 1982, a period of strong economic and earnings growth. Despite recent corrections, both the Dow and NASDAQ are still up 1000% since 1982.
Huge and Growing Consumer Debt Bubble – Consumer spending is a key driver of our economic growth. Americans are now more than $1.7 trillion in debt. The Consumer Debt Bubble is greatly helping to boost our economy.
Why do we have all these simultaneous bubbles?
We have all these bubbles because the government borrowed a lot of money from foreign investors over the last 25 years, which helped boom our economy and asset values, especially stocks and real estate. Beginning in 1982, large foreign-funded government deficits have been the engine behind the growth of the U.S. economy and, in turn, the growth of many economies around the world (see Chapter 2).
Why are these bubbles a problem?
Bubbles, by nature, cannot last forever. Unlike the single, isolated bubbles of the past, our current bubbles are linked. Connect the dots: On the way up, each bubble helped the others rise; on the way down, each declining bubble will force the others to fall.
What will cause the bubbles to pop?
A longer term change in investor psychology – from super confident to not so confident in the future growth potential of the U.S. stock market (see Chapter 3).
What will change investor psychology?
First, a slow drop in investor confidence as the housing boom slows down (and reverses in some areas), as the economy cools off due to reduced housing construction and higher interest rates, and as the dollar continues to decline, despite interest rate hikes designed to save it. We call this Stage 1, which has already begun.
In Stage 2, a significantly falling dollar (driven down by continuing pressure from the trade deficit bubble, and Chinese and Japanese central banks that are increasingly unable to keep buying massive amounts of dollars to prop up the dollar and their exports) will drive foreign investors – who currently hold more than $12 trillion in U.S. assets – to begin dumping their U.S. stocks, dollars, bonds and other assets to dodge the falling dollar and make bigger profits elsewhere.
What will happen when foreign investors find U.S. assets less attractive?
The exit of foreign capital will cause interest rates to increase rapidly (significantly pushing down real estate values) and the stock market to fall dramatically. As this happens, all the bubbles that were working together to boost the economy and its stock and real estate asset values, will begin to burst, working together to push down the economy, including stock and real estate assets values.
How bad will it get?
Popping any one bubble, by itself, would not be that bad. Popping a big group of linked, simultaneous bubbles will cause temporary but massive problems here and around the globe – a shockwave of rising interest rates, inflation and unemployment, coupled with falling asset values and slowing trade worldwide. We call this the Bubblequake. (Hard to believe? See Chapter 4 for Frequently Asked Questions.)
The good news: See it coming and cover your assets
Reasonable people who see past the current group denial about America’s Bubble Economy can position themselves now to protect their homes, savings, investment portfolios and other assets – before it’s too late (see Chapter 5).
The really good news: Profit when it pops
Smart, reasonable people can get ahead of the curve and create tremendous wealth when these linked financial bubbles begin to pop. Ordinary folks, not just the fabulously wealthy, have many ways to profit from gold, gold ETFs, euros, euro ETFs, bear funds, and more (see Chapter 5 and 6). Best jobs and businesses will be within the Necessities Sector of the economy (e.g., healthcare), and buying and servicing distressed properties and assets (see Chapter 7).
What makes this book different from the rest?
1. Not a doom-and-gloom book. Yes, we reveal some bad news that can no longer be ignored, but not without illuminating WHY this is happening so readers can see it coming and understand what to do about it.
2. Practical. We show American, European, Asian, and other investors how to cash in on what will certainly be the biggest wealth building opportunity of our times. What could be less gloomy than knowing what’s coming AND how to cash in on it?
3. Entertaining. Loaded with engaging graphics, poignant New Yorker cartoons, and irreverent sidebars. This is not your father’s finance book.
4. Original. Like no book before it, the final chapter of America’s Bubble Economy provides a truly BIG Big Picture view of how this unique moment in time fits into the much broader evolution of money and society (see Chapter “8″).
In summary… America’s Bubble Economy shows readers how to dramatically increase wealth, grow businesses, and choose the best jobs when our linked, simultaneous bubbles pop and send a temporary shockwave around the globe. The book explains what drove the bubbles to grow, when and why they will burst, who will win and lose, how to cash in on the tremendous financial opportunities it will create, and how our current economy fits into the much larger context of monetary and economic evolution.
