Are We Headed for Troubled Waters?

By Tom Dardick

Have you seen the Project Prophesy online video? A vehicle for Jim Rickards to sell his publications, it is one of a chorus of warnings of impending financial and social collapse. Rickard’s, and the many other Chicken Little’s, are mostly dismissed. In the case of Project Prophesy, you can see why. But as is quite common, detractors criticize messengers, but are somehow more reluctant to provide evidence to refute their claims and these claims are remarkable. You may realize that we have a debt bubble and that the dollar is stressed. If the data Rickards provides is correct, you likely do not appreciate the extent.

This is a complicated topic. Let’s take a look at history.

History supports Rickards’ claims. Let’s look at his key issue: the U.S. Debt crisis. Our national debt is coming up on $18 trillion. Before Obama leaves office, it’ll be around $20 trillion. The problem with these numbers is that they’re too big to understand, so we tend to discount them. We don’t worry too much. But we should, because this isn’t the whole story.

American citizens are on the hook for a multitude of things other than the current IOU’s. We also owe money to people in the future. These are called unfunded liabilities. Things like Social Security, Obamacare, and Medicare fall into this category. The Congressional Budget Office acknowledges that these combine for over $127 trillion in additional debt. To put that in perspective, that’s half of the wealth in the entire world. If we hold our present course, within 20 years total U.S. Government spending would only cover two items - Social Security and interest on the debt.

Overspending is the norm, not the exception. People want their goodies now, the welfare of future generations be damned. When nations do this, it never ends well. People will not elect leaders who will make the tough decisions to prevent catastrophe. Today, just the suggestion of Social Security reform nearly makes a candidate for President unelectable.

So we are headed for troubled waters. Just how troubled, when we hit them, and precisely what we should do about it – these are opinions. Rickards claims we’re in the storm already. He says we are in a depression but the government uses funny accounting to hide the fact. Unemployment and inflation are certainly being understated. Do you believe that we have a 5.5% unemployment rate when over 93 million working age Americans are not employed? Me neither and don’t know if it is actually 23% as Rickards claims.

When a debt bubble bursts, the backing currency collapses. For us, that could mean a few things.

  1. High Inflation – Incomes may not keep up with rapidly rising costs.
  2. Bank Runs – As is happening in Greece, you could find yourself frozen or restricted in accessing your cash. Greece allows each citizen to withdraw 60 Euros per day – no matter how much you have in the bank.
  3. Goods/Services Interruption – Demand could so outdistance supply that rationing could take place. We’ve seen this before. The Oil Crisis of the 1970’s meant you could only buy gas on odd or even days. We also see rolling blackouts where electrical power becomes scarce, water rationing in times of drought, etc.
  4. Stock Market Crash – Those prudent to save enough liquid assets for retirement or other uses could see those savings disappear overnight.

Rickards wants you to take his advice. Maybe you should. But here’s mine: Pay attention. Don’t be one of the many who will be utterly blindsided and pay a very high price indeed. I’m no doomsday prepper, but I can see the cliff that lies ahead. It’s smart to make sure you have water, power, food, vitamins, cash, and even precious metals and guns and ammunition to get you through a crisis period. Should this world-record sized bubble burst in spectacular fashion, you will be very thankful that you did.

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