Are We In For Financial Armageddon? Yes, If Everything Possible Goes Wrong

by: Roger Nusbaum

roger nusbaumRoger Nusbaum submits: I finished reading Financial Armageddon: Protecting Your Future from Four Impending Catastrophes by Michael Panzner on Sunday. After reading this book you will soon grow weary of Nouriel Roubini's overly bullish rantings (humor attempt).

I don't believe I have ever read such a dark prognosis before. Michael believes it could even get to the point where there is not enough money for normal maintenance of infrastructure causing regular black outs.

As a matter of philosophy, I tend to not expect the most extreme outcome (in either direction). If you know who Michael Panzner is, you know he is very smart and very experienced -- but that does not have to mean he is right.

For everything to come unglued in the manner and with the all-encompassing depth he thinks will happen would require an incredibly perfect storm. The thesis seems to be that everything, and I do mean everything, that is unhealthy will play out to its worst possible outcome. Hyper inflation, asset price death spiral, higher unemployment than in the great depression and so on are all in the cards, and we may take down a few other places with us.

He goes on to discuss the unraveling of the social fabric of the United States, higher crime rates, people having to take in destitute family members (which will lead to increased domestic violence and more stress-related health problems) and maybe even Martial Law.

As I read, it seemed like some of his beliefs were more opinion without a clear and obvious cause and effect. This last statement is obviously subjective on my part.

There were several things in the book that flat out do not add up to me, and I'll mention a couple of them in this post.

Michael brings up the notion that some banks are too big to fail and so would not be allowed to fail. Given the U.S.'s role in the world economic order and the number of countries that have a vested interest in the U.S. staying solvent, the U.S. might seem to be too big to fail. While this may or may not be true, I think the point needs to entertained in order for the discussion to be complete.

Michael envisions banking problems similar to the bank runs that occurred during the great depression. I have trouble envisioning people going down to the bank for any reason when money can be moved electronically from home. Michael does touch on this, but a bank run seems to ignore the general modernization of society that has happened.

Throughout the book Michael makes historical references to support his argument, but most of them (maybe all?) seemed to not have had anywhere near the impact that Michael sees coming. Put differently, there is an assumption that some things will repeat but with a much larger impact. I'm not sure why that has to be, and I'm not sure that the case for why was made either.

About a year ago Michael and I took different sides on whether derivatives would be the financial undoing of the U.S. economy in the Wall Street Journal (I looked for the link but it was no longer there). You can probably guess who took what side. Shortly thereafter, Amaranth blew up with relatively little lasting impact. There are a lot of scary things that have happened before and will happen in the future, but they are not necessarily systemic in nature.

I think he is correct that there are a zillion problems that threaten to make things more difficult here on the home front. I have written about this many times, noting that I expect generally lower equity returns, slightly higher interest rates and some nasty changes in the various entitlement programs. However I do not place any realistic probability that the world will metaphorically end.

Reading the book is worthwhile and I would encourage you to judge for yourself.