Most Popular ArticlesJune 23, 2009
Government policies like free trade programs have moved technology and manufacturing jobs off-shore, crippling the US economic base. Williams says this has driven down workers’ inflation-adjusted wages and has reduced personal consumption, the largest component of GDP. Using the government’s numbers, the inflation-adjusted weekly earnings for workers has not regained its peak set in the mid-1970s. Back then, dual wage-earning families were rare; now they are commonplace, as households seek ways to make ends meet.
GDP growth was artificially inflated through consumer debt expansion and savings liquidation over the last 25 years, but that source of growth is gone. Without robust consumer spending, the economy is in a structural decline, and Williams says it will take a “decade or two” to recover.
Finding a solution
There is no way out. For example, I asked Williams whether we could grow our way to solvency, through prudent and efficient stimulus and budget spending. He says this is an “absolute impossibility.” The debt burden is too great. Even if tax rates were increased to 100% of corporate and personal income, Williams says the resulting revenue would be insufficient to cover the deficit.
Slashing Social Security and Medicare spending might be an option, Williams says, but instead of doing this, the government is looking to do the opposite. “The cuts needed are so severe that they would elicit a radical political reaction,” he says. “It’s not just a matter of advancing the retirement age from 65 to 75.”
Healthcare reform to curtail malpractice claims is similarly impossible, since the powerful trial lawyers’ lobby opposes such efforts, according to Williams.
Portfolios for hyperinflation
If you accept Williams’ economic forecast, then you can follow his investment advice, which is to “protect yourself from the debasement of your currency” and hold gold and possibly some silver. Real estate is a reasonable hedge in hyperinflation, but lacks the portability of gold. Equities will suffer – Williams forecasts a 90% market decline once hyperinflation sets in. As you would expect, Williams recommends diversifying away from dollar-based assets.
You can refuse to believe and dismiss Williams’ forecasts. Williams may be wrong – I certainly hope he is – but every advisor must have a response to his claims. If you don’t, then you should follow his investment advice.
Williams may have miscalculated on several fronts. Political pressure may mount to reform the entitlement programs as we are pushed closer to the brink of that crisis. Reforms, like indexing Social Security increases to the cost of benefits instead of wages, are possible. Tax increases are a certainty. And you cannot discount the possibility of extreme – and unforeseeable – measures the government would take to avert this disaster, which could be virtually anything short of declaring bankruptcy.
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