November 4, 2013

I was asked the other day if I thought the economy would collapse before President Obama left office. I couldn't answer that with any certainty. Neither could the world's best economists.

Why not?

Because there are many variables the could transpire before a complete catastrophe of the economy happens.

But if you were to ask me if we stay on the same course that Obama and the Democrats in Congress have driven us to will we see the dollar become worthless, will a loaf of break cost a wheelbarrow full of money, would millions of people lose their jobs and would the middle class disappear into the lower class, if would unequivocally say: "Yes."

David Buckner, the founder and CEO of Bottom Line Training and Consulting, an adjunct professor at Columbia University, and the author of “Permission to Think,” believes hyperinflation and a total collapse is just around the corner.

Buckner says that in discussing hyperinflation, people often refer to the Weimar Republic, Zimbabwe, and Bolivia, but say “it could never happen here” because a “certain kind of layering has to occur” that America hasn’t seen.

Buckner says there is a “recipe” for hyperinflation. The ingredients are, in order:

1) Economic Implosion

2) Collapse in tax revenues

3) Raise taxes

4) Lenders unwilling

5) Austerity or print

Now I know that all five have occurred over the course of the last six years.

Yet there are those who still squabble about certain points in the list — and regardless of whether we satisfy the recipe, people still say three things in America are “different,” and set us apart from the standard formula.

First, it is said that “everyone wants to buy our debt,” and no one will ever stop wanting to do so.  But Buckner counters that China is already quickly shifting our debt quickly to gold, and analogized the situation to a restaurant where China, the chef, lends the United States money to eat at its establishment.  Pretty soon, he says, there will be other customers, like India, who can pay outright.

Second, some also claim that “we’re not printing money” because “we’re exchanging an asset – a bond – for cash.”

“What they’re not saying is where that bond’s coming from – treasuries.  As soon as the government puts it out there, the Fed comes and takes it,” Buckner said.  “It’s circular, it’s absolutely circular. So we are printing money.”

The third factor that many say differentiates America is that we are a “productive” country, but Buckner disagrees here, as well.

What exactly does America produce these days, he asked? We have Apple, but the products are primarily manufactured overseas.  We have a good financial sector, but can we depend on that in tough times?  Others cite the country’s many innovators as something we “produce,” but Buckner noted that innovators are “produced” elsewhere, also.

Now you can say, that you’re not seeing hyperinflation, but that’s because, the interest rates are so low, nobody’s putting that cash back into investments in the United States.  But they are putting it into desperate countries in Europe. They’re putting it into other investments. And the money’s going out there, so the second Ben Bernanke, or his successor Janet Yellon, raises the interest rates, all of a sudden the money will suck back into the United States and we have hyperinflation.

Now you may ask if we need an “event” of some sort to trigger such a meltdown. I say that we’ve had an event, but…we’ve become comfortably numb and woefully dumb. There has been a lot of behind the scenes stuff going on.  The treasuries continue to go out, and Bernanke continues to buy debt. But anytime he starts to back off the markets freak out, because they know. The markets know. Buckner says we don’t! People don’t and won't until it's too late. People who are retired, pensioners, elderly, people who are holding money are going to be devastated.

If I were a prophet or a soothsayer, or if I were forced at gunpoint to give a timeline for an economic disaster, I'd have to say between October, 2014 and January of 2015. Even David Buckner believes that in the Autumn of 2014 we are likely to see “an increase in interest rates which will start the domino.”

“When Bernanke announced that there would be a tapering, the markets just dropped because they knew that even if the interest rates changed one infinitesimal amount, it was the beginning of the domino,” he said.

How fast do the dominos go down?

Buckner says “Three months.”  When I listen to other economists who have similar opinions and prognostications, they, too, say it will take three months. And it’s going to be perception more than real price.

We are going to see hoarding, we're going to see fear. It’s not the actuality. So if they can put a glaze over everybody…it may slow it down. That is the problem. Buckner says we’re dealing with an illusion. "It’s an illusion of what is real.  We don’t have the money. So when the interest rates go up, you’re going to see a domino.”

And the dominos will fall fast.

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