This article and its related reading of three outstanding books aspires to provide convincing arguments that an economic collapse is coming. It is believed that deflation, not inflation, is the problem. Gold is not a solution.
An informal survey a year ago of Seeking Alpha writers seems to indicate that not 1 in 500 writers thought a 1929 type economic collapse to be likely in our near future. Even today, it appears not 1 in 30 thinks this is likely. Yet there are powerful arguments on why this is probable. Three prominent writers have published books that make these arguments, and I believe any reader of Seeking Alpha would greatly benefit from reading these books. A brief synopsis below of the contents provides you a feel for the validity of these books. Links point to the Amazon readers’ reviews of these three books, revealing what many other people think about them.
The first book is Carmen Reinhart's This Time Is Different: Eight Centuries of Financial Folly. She and her husband are impeccable economists. I have not found any meaningful dispute with her book and her conclusions. The bottom line is that the United States is in a bubble where the high indebtedness is too high to be sustainable or that can be retrenched to normal levels without an event similar to the 1929 experience, or at least more severe than any other downturn since 1929.
Neither classic Keynesian stimulus (which is the proposal of President Obama and the Fed) nor Tea Party cost cutting can now avoid the inevitable blowing of the bubble and the consequential horrendous economic retrenchment. This is not a political or even an economic judgment by Carmen Reinhardt; it is a fact of history that when a country puts itself in the position of the United States today, 800 years of history says the US is going to go through an economic retrenchment. She provides historical case histories as proof, but does not attempt to explain all the consequences of the debt bubble bursting.
The second book is John Mauldin's Endgame: The End of the Debt Supercycle and How it Changes Everything. I know some bank senior managers are telling their subordinates that this book is required reading. Mauldin is a most important economic writer. He starts with the work of Carmen Reinhardt, but goes on to explain why the United States must inevitably go through the severe economic adjustment. He makes a broad-scale analysis of all the causes and effects of our current situation. The title “endgame” makes clear where this is all going. I find it hard to think that anyone who reads this book could come away thinking we have solved the problems and the good old days are coming back.
The third book is Harry S. Dent's The Great Crash Ahead: Strategies for a World Turned Upside Down. This book is very similar to Mauldin's, but adds some very useful things. First, let me say Dent is the most controversial of the three authors. Dent has made some awful calls, including that the Dow would go to 40,000. But I think he has got it right this time around. His book also includes original thinking, which says a lot of the problems are caused by changes in population growth and the ages of the population. This concept is not widely used in traditional economics, but I think it makes an important contribution here.
He also predicts some very specific dates when this will all collapse. I find the problem with fundamental economists is that they can predict correctly what is going to happen, but they often tend to be too early in thinking when it is going to happen. This may well happen with his projections: he expects the problem will probably explode in 2012. While I personally share this idea, my focus is on what is going to happen and not necessarily picking a month and year for it too happen.
In summary, I think these books should be required reading for anyone making economic predictions. I do not think that anyone who reads these books can reasonably say he expects that life will continue on without serious economic consequences.
If you have to read only one of the three books, read John Mauldin's book, which provides a good understanding of coming events. Carmen Reinhardt’s book is essential for anyone who insists this is simply a little downturn and we are through it. Dent's book is good at explaining the coming defaults of US states, municipalities and Social Security, themes that are not described in detail in the other books. There are many who understand a problem is coming but think the problem is inflation and gold is the protection. These books are also required reading for anyone who thinks inflation is the problem when, in fact, the problem is deflation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.