What the World Will Look Like After This

by: Larry MacDonald

Michael Panzner’s When Giants Fall: An Economic Roadmap for the end of the American era takes a look at what’s likely to follow the financial meltdown of 2008. If the scenario laid out in the book turns out to be as accurate as the forecast in the author’s 2007 book, Financial Armageddon, we are in for a lot more pain.

“Among the factors causing strains,” writes the author, “will be the fallout from unraveling economies and heightened resource constraints, waning U.S. power and global competition for influence … boundaries will shift and alliances will unravel, much like they did when the Communist Party was no longer able to exert its authority over the Union of Soviet Socialist Republics….”

A sign of a good book is that it gives the reader new perspectives and stimulates their thinking – even if they happen to disagree in whole, or part, with the author. Panzner’s latest book easily passes this test.

For example, I was intrigued by the questioning of the notion that foreign diversification is good for portfolios. This popular view might not deliver as well as expected when the world economy is contracting and protectionist measures are multiplying. “The “risks of investing … abroad will be far greater than in the past,” writes Panzner. During de-globalization, “countries will be less concerned about protecting foreigners’ rights….”

Living in Canada, I got a kick out of reading that one of the few bright spots in the panorama of gloom was Canada. The country “seems to offer great promise as an investment destination. With its relatively stable history and political structure … rich deposits of hydrocarbons and other commodities, access to water, and arable land for farming, the country would seem to have a lot going for it.”

Major themes in the book include:

• A surge in protectionist measures and consequent prolongation of the economic contraction — in unison with other “second-order effects,”

• An extended retrenchment in the free-spending American consumer and firms catering to them,

• Ever more perilous government finances that lead to cutbacks to government programs, hikes in tax burdens, forced conversions of investments into government bonds, and a resort in the U.S. to the printing press that may trigger “a hyperinflationary spiral,”

• General loss of confidence in U.S. dollar and other fiat currencies and concomitant rise in preference for precious metals as store of value,

• Stocks and bonds will be undesirable asset classes; embrace commodities and resources

• Threat of economic blackmail and loss of influence posed by vast reserves of U.S. dollars held by China and other countries

• Continued slide in real estate prices, until 2012 at the earliest,

• Suburbs to become a wasteland due to water and energy limits,

• Rise in civil, regional, and international conflict

When Giants Fall: An Economic Roadmap for the end of the American era by Michael Panzner, John Wiley & Sons, 2009