Baby Boomers

Rich Dad Author Robert Kiyosaki: 2016 Market Meltdown ‘Right On Schedule’

The last time I blogged about Robert Kiyosaki, the American entrepreneur, educator, investor, and author of The New York Times best-selling book Rich Dad Poor Dad talked about precious metals in a January 27, 2016, Radio interview. From his exchange with host Chris Waltzek:

WALTZEK: People taking a longer-term perspective, picking up some precious metals. You get that diversification. You can sleep a little more soundly at night. And you also know that you’re getting silver at 66 percent off, gold 40-45 percent off the highs. So where’s the risk there?
KIYOSAKI: The risk is not having it. And that’s why I’m laughing about Saturday Night Live and I can’t tell Fox from Saturday Night Live because those guys are a bunch of cartoons up there now. And those are the guys you’re going to count on for your economy? Give me a break. I mean, right now I trust in gold and I trust in silver. I don’t trust the stock market. I don’t trust the Fed. I don’t trust our leaders. I don’t trust the EU to not come apart. You have Puerto Rico in serious trouble. I mean how many other things have you got out there? And you look at the national debt- it’s now $20 trillion. If you want to believe Saturday Night Live characters then you just keep believing. But I’d rather have gold and silver.

The author of the recently-released Second Chance: for Your Money, Your Life and Our World also informed listeners he got out of stocks “fully” last March.

Last week, I spotted a piece about Kiyosaki on Barbara Kollmeyer reported on March 23:

Fourteen years ago, the author of a series of popular personal-finance books predicted that 2016 would bring about the worst market crash in history, damaging the financial dreams of millions of baby boomers just as they started to depend on that money to fund retirement.

Broader U.S. stock markets are recovering from the worst 10-day start to a year on record. But Robert Kiyosaki- who made that 2016 forecast in the 2002 book “Rich Dad’s Prophecy” – says the meltdown is under way, and there’s little investors can do but buy gold or silver and hope the Federal Reserve slows the slide.

Kiyosaki is convinced: The pullback he predicted is happening.

“We’re right on schedule,” he said in a recent interview with MarketWatch…

(Editor’s note: Bold added for emphasis)

Kollmeyer added later:

Kiyosaki told MarketWatch that the combination of demographics and global economic weakness makes the next crash inevitable — but the Fed could stave it off with another round of quantitative easing, which might stimulate the economy…

“The big question [whether] we do ‘QE4,’” said Kiyosaki. “If we do, the stock market will come roaring back, but it’s not rocket science. If we stop printing money, it crashes; if we print money, it goes up. But, eventually, it’s all going to come down.”

(Editor’s note: Bold added for emphasis)

To combat the crash, Kiyoski still places his trust in gold and silver, among other things. From the piece:

He thinks investors should own some gold or silver, based on the view that central banks will just have to print money to get out of the next crisis and precious metals are often deployed as a perceived hedge against inflation. Some investors, meanwhile, might look for investments geared toward income, such as rent payments or dividends, rather than appreciation.

“If you know what you’re doing and are investing for cash flow, baby boomers — or any investors — may see some gains,” he said. “But for those whose wealth is tied up in the [equity] markets, it’s more like gambling than investing.”

(Editor’s note: Bold added for emphasis)

An excellent interview of Kiyosaki by MarketWatch, which you can read in its entirety over on their website here.

Christopher E. Hill
Survival And Prosperity (

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)


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Rich Dad Author Robert Kiyosaki: ‘I’d Rather Have Gold And Silver And Guns And Bullets’

“Gold futures settled near a five-and-a-half week low on Friday, with expectations that the U.S. Federal Reserve will soon lift interest rates helping to send prices down for a fifth straight week…”

-MarketWatch website, July 24, 2015

“Gold is doomed”

The Washington Post website, July 25, 2015

Back in February, I blogged about Robert Kiyosaki, an American entrepreneur, educator, investor, and author of the New York Times best-selling book Rich Dad Poor Dad. Kiyosaki appeared on the Alex Jones Show on February 17, 2015, and warned viewers:

It doesn’t make me happy that I’m getting richer and richer, and I see my friends getting poorer and poorer. I’m very concerned right now about my generation- the Baby Boom generation, the biggest generation in history. And they bought that program of put all your money in a 401(k) and invest for the long term. Now, I wrote a book called Rich Dad’s Prophecy back in 2002. That was 13 years ago. And I said the biggest stock market crash in the history of the world was coming in 2016. I was kind of guessing. But unfortunately, I didn’t write it to be right. I wrote it out of concern. If I’m correct that in 2002 what I said the biggest market crash was coming in 2016, that means millions and millions of Baby Boomers, their kids, their grandkids, will feel the effect of that when their retirement savings are wiped out. I hope I’m wrong. But so far, my numbers look accurate and it’s holding course right now. So I don’t write because I want to be rich or poke fun or want to be righteous. I am rather concerned about my fellow citizens.

Kiyosaki revealed one way he was preparing for the crash while discussing his new book, Second Chance: for Your Money, Your Life and Our World. From the exchange:

I like silver personally. I love gold. I have a lot of gold and silver.

While there’s no shortage of precious metals bears these days, Kiyosaki remains bullish on gold and silver- in addition to two other “metals.” In a Palisade Radio interview uploaded onto YouTube on June 28, he told viewers:

You should buy gold and silver because eventually the tug of war between deflation and inflation, somebody’s going to quit, and I think it’s going to be hyperinflation. So that’s why gold and silver make sense to me…

So I’m pretty optimistic. I’m going to make even more money when the crash comes. But unfortunately, like I said, for those who are not prepared, gold and silver are probably the best investments. But you have gold and silver, two other precious metals, guns and bullets (laughing). The reason for that, I laugh about it, but my friend reminds me of this. He says you rich guys can buy gold and silver. Poor guys buy guns and bullets. So I can understand that mentality is this gap between the 1 percent and the 99 percent. I’d rather have gold and silver and guns and bullets. This is why I don’t live in California (laughing). I live in Arizona, where they already respect guns and bullets.

“Robert Kiyosaki: Biggest Stock Market Crash in History Coming in 2016 – June 28, 2015”
YouTube Video

According to Kiyosaki, 2016 to 2030 is “going to be very tumultuous.”

Christopher E. Hill
Survival And Prosperity (

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)


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Robert Kiyosaki: 2002 Prediction Of Huge Stock Market Crash Next Year ‘Holding Course’

“‘Rich Dad’s Prophecy’- [Robert Kiyosaki’s] most recent book- predicts that the market will crash around 2016 when the oldest Baby Boomers start cashing out their 401(k) plans. Individuals whose savings are locked into 401(k) plans will suffer because these retirement plans, aren’t flexible and don’t do well in a bear market…”, October 30, 2002

How many readers out there know who Robert Kiyosaki is? The American entrepreneur, educator, and investor was quite popular back in the early 2000s. I first encountered him while watching public television around that time, sharing financial and investment strategies taught to him by his rich “Dad” and found in his 2000 New York Times best-selling book Rich Dad Poor Dad. Kiyosaki went on to write a number of books, including Rich Dad’s Prophecy in 2002.

Last Tuesday, Robert Kiyosaki appeared on the Alex Jones Show. Kiyosaki talked about his new book, Second Chance, and other subjects, including a certain prediction made about the U.S. stock market next year. From their exchange:

JONES: The world is just crazy at this point. Give us your prognosis for the planet. There’s obviously opportunities for those of us that are studying it. I mean, I going to do better probably than ever as things get worse. But I’m not happy about that, because I know it’s hurting the average person.
KIYOSAKI: Amen. Alex, I would say exactly the same thing. It doesn’t make me happy that I’m getting richer and richer, and I see my friends getting poorer and poorer. I’m very concerned right now about my generation- the Baby Boom generation, the biggest generation in history. And they bought that program of put all your money in a 401(k) and invest for the long term. Now, I wrote a book called Rich Dad’s Prophecy back in 2002. That was 13 years ago. And I said the biggest stock market crash in the history of the world was coming in 2016. I was kind of guessing. But unfortunately, I didn’t write it to be right. I wrote it out of concern. If I’m correct that in 2002 what I said the biggest market crash was coming in 2016, that means millions and millions of Baby Boomers, their kids, their grandkids, will feel the effect of that when their retirement savings are wiped out. I hope I’m wrong. But so far, my numbers look accurate and it’s holding course right now. So I don’t write because I want to be rich or poke fun or want to be righteous. I am rather concerned about my fellow citizens.

“But so far, my numbers look accurate and it’s holding course right now.”

Disturbing. Kiyosaki added later on in the interview:

I’m just concerned about this possible- I hope it doesn’t happen- but if my “rich Dad” was correct, again, published in 2002 Rich Dad’s Prophecy predicted the biggest crash in the history of the world was coming in 2016. And that’s why I wrote Rich Dad Poor Dad, that’s why I speak, that’s why I write, that’s why I take on the media. But I’m very concerned for my [fellow] citizens. Look, Alex, what happens? Let’s say I’m right- hopefully I’m not. And millions of Baby Boomers lose their pensions, their homes, their jobs- they lose everything. What is the ripple effect throughout the world going to mean to that? We’ve never been here before. Never before has the U.S. dollar, one currency, been the reserve currency of the world- and we’re printing it. The Europeans are printing, Japanese are printing. And you’ve got to look at this and go, “This is not good.” So that’s my concern right now.

“Great Economic Collapse & Currency Meltdown Is Coming
Says Financier Robert Kiyosaki”
YouTube Video

So how is Robert Kiyosaki going to fend off the crisis he still sees coming? While taking phone calls from listeners, Kiyosaki revealed:

I like silver personally. I love gold. I have a lot of gold and silver.

Further insight was provided right before the holidays, when Eve Fisher of The Sydney Morning Herald reported:

“The world is in very serious trouble and the next 20 years will not be like the past two decades,” says Kiyosaki, who predicted the downfall of Lehman Brothers investment bank in 2008 and the ensuing GFC.

“I foresee a global currency crash, like the one that ruined Germany in the 1920s, which will wipe out the poor and the middle class – as the rich get richer.

“People will see that money and shares are not real wealth, just paper, and the way to survive is by acquiring assets – like property, resources, gold and other precious metals.”

Farmers will benefit as land and food become highly valued commodities, he says…

(Editor’s note: Bold added for emphasis)

Christopher E. Hill
Survival And Prosperity (

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)


Fisher, Eve. “Robert Kiyosaki says to prepare for the worst.” The Sydney Morning Herald. 10 Nov. 2014. ( 21 Feb. 2015.

Robert Kiyosaki’s latest book…


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Peter Schiff Blasts U.S. Jobs Report, Irrational Exuberance 2.0, So-Called Experts

“Bullish U.S. jobs report keeps Fed on track for mid-2015 rate hike”
-Reuters website, December 5, 2014

“U.S. Stocks Rise After Strong Jobs Report”
The Wall Street Journal website, December 5, 2014

“Hiring surged in November as employers added 321,000 jobs, crowning 2014 as the strongest year for job growth since 1999.”
-CNN Money website, December 5, 2014

Any readers thinking Friday’s U.S. jobs report sounded too good to be true?

Euro Pacific Capital’s Peter Schiff did, and in his Friday entry on The Schiff Report Video Blog on YouTube, the “crash prophet” let the Pollyannas have it. Schiff pointed out:

If you actually look beneath the surface of this “strong” report, there are a lot of problems. First of all, again, more than half of the jobs that were created were low-paying jobs. You’re talking about secretarial, administrative assistant-type jobs, waiters, bartenders, retail. Also jobs in leisure and hospitality, temporary services- that’s more than half the jobs. Also, there’s another report that comes out which is the household survey. This is the establishment survey- the non-farm number. But there’s a household survey, and that one was flat. Basically, no gain in jobs in November. And in fact, they reported about 150,000 decrease in full-time jobs. So it was made up by an increase in part-time jobs. And in fact, in that household survey, you find that the big job losers went to younger people. People 16 to 24- there was a big drop in their numbers in the workforce. But you had a record number of people 55 and older entering the workforce. Labor force participation, which is still 62.8, which matches the lowest level since 1978. The labor force participation for older people, who should be retiring- that’s going up. But the labor force participation for younger people, who should be entering the work force- that’s going down

Why can’t we produce full-time jobs for these millions of Americans who are working part time but who want full-time jobs? And the answer is- because we’re not creating full-time jobs. We’re really creating part-time jobs. And I believe a lot of these jobs have to do with an anticipation of a robust holiday shopping season and a robust 2015. Because everybody is convinced that we have this recovery that businesses are gearing up to prepare for. And I think they’re gearing up for a huge disappointment. I’ve described the recovery as a mirage, and the closer we get to when it’s supposed to start, I think the more people will see it for what it is. It is a fantasy, it is not a reality…

This is supposedly the best year for job creation since 1999- this is what the media is saying. Well if this is really the case, if this is the best year for job creation, why is the shopping season so poor? And why did the Republicans just win in a landslide in these mid-term elections that just happened, when the voters said the reason they were voting Republican, is because they were frustrated by a weak economy. They felt the economy was going in the wrong direction. Well everybody is so excited about this “miracle”- this economic miracle of a recovery- except for the people who are supposedly living in the miracle. Because to them, it’s not a dream, it is a nightmare.

Noting that Friday was 18 years to the day that former Federal Reserve Chairman Alan Greenspan gave his “irrational exuberance” speech, Schiff warned about the new “irrational exuberance” in America that easily surpasses 1996’s version. From the vlog:

If we’re going to talk about irrational exuberance in the markets, eighteen years ago is nothing compared to the irrational exuberance that we have today. Today, we are off the charts irrational and exuberant considering the enormity of the problem…

None of the so-called experts who are talking about the “economic miracle” and “these amazing numbers” and how “our economy is the envy of the world”- none of these guys saw the problems at the peak in 2000. They didn’t see the problems in the housing market or the coming financial crisis in 2007 and 2008. So they have a lousy track record when it comes to identifying in advance the problems that underlie the economy. And I think the problems that are underlying the economy now are bigger than ever, and the “experts” are blinder than ever.

“Does Today’s Overhyped Jobs Report Mean 1 Out of 4 Ain’t Bad?’
YouTube Video

By Christopher E. Hill
Survival And Prosperity (

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)


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Record Net Worth Result Of Fed Blowing Bubbles In Housing, Stocks?

I was surfing the Internet last night when I read something about Americans’ net worth making a comeback. Neil Shah reported on The Wall Street Journal website Thursday:

Americans’ wealth hit the highest level ever last year, according to data released Thursday, reflecting a surge in the value of stocks and homes that has boosted the most affluent U.S. households.

The net worth of U.S. households and nonprofit organizations rose 14% last year, or almost $10 trillion, to $80.7 trillion, the highest on record, according to a Federal Reserve report released Thursday. Even adjusted for inflation using the Fed’s preferred gauge of prices, U.S. household net worth—the value of homes, stocks and other assets minus debts and other liabilities—hit a fresh record…

(Editor’s note: Italics added for emphasis)

I can’t say I’m surprised to hear of this rebound in net worth. After all, Euro Pacific Capital’s Peter Schiff has been warning for a couple of years now that the Federal Reserve is inflating new asset bubbles via tremendous amounts of stimulus (quantitative easing) to spark some sort of economic recovery in the wake of the bursting of the housing bubble and global financial crisis that reared its head in the fall of 2008. I blogged back on September 18, 2012:

In his September 14 entry on the The Schiff Report YouTube video blog, Schiff, who correctly-predicted the bursting of the U.S. housing bubble and 2008 global economic crisis, explained to viewers what QE3 was really about:

This is the plan that Ben Bernanke has. Ben Bernanke’s plan to revive the U.S. economy, and create jobs, is to inflate another housing bubble. That’s it. That’s what the Fed’s got. That’s what it came up with. As if the last housing bubble worked out so well for the economy, that the Fed wants an encore…

How is another housing bubble going to solve anything. Now one thing that Ben Bernanke hasn’t figured out yet- it ain’t gonna work. No matter how much he tries, no matter how much air he blows in to that housing market, he’s not going to reflate that bubble. There are simply too many holes in it, and there is no precedent for relating a busted bubble. More likely, all that cheap money is going to go someplace else…

Schiff asserted the Federal Reserve was trying to inflate another housing bubble.

Instead, there’s suggestions both housing and the stock market look “frothy” these days.

Suppose the Fed did in fact want to inflate new asset bubbles. If the central bank aimed to spread the wealth around in an attempt to jump-start the economy, it doesn’t seem to be happening. Shah noted in that WSJ article:

But the rebound, while powerful, has been tilted in a way that limits the upside for the broader U.S. economy and is increasingly leaving behind many middle- and lower-income Americans…

That means that even as wealth increases, it’s increasingly going to the affluent.

In addition to the affluent, much of the wealth surge is going to older Americans. Both groups are less likely to spend their gains and more likely to save, Mr. Emmons said. Meanwhile, sheer demographics—the retirement of the baby boomers and America’s aging population—are increasing the ranks of the nation’s savers.

The upshot: While American households overall are getting wealthier, the benefits for the economy may prove limited until such improvements reach more people.

(Editor’s note: Italics added for emphasis)

“The benefits for the economy may prove limited until such improvements reach more people.”

I fear another financial crisis will have paid us a visit before such prosperity is achieved.

By Christopher E. Hill
Survival And Prosperity (


Shah, Neil “U.S. Household Net Worth Hits Record High.” The Wall Street Journal. 6 Mar. 2014. (link). 7 Mar. 2014.


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Harry Dent: Investors Lucky To Get Zero Percent Return In Stocks Over Next Decade

On Monday afternoon, the financial newsletter writer Harry S. Dent, Jr., appeared on CNBC’s Closing Bell. Anchor Maria Bartiromo noted Dent had told CNBC last month that the Dow Jones Industrial Average was headed to 3,300 over the next three years. And these days, Bartiromo said Dent is claiming investors would be lucky to get zero percent in stocks over the next decade, and “Baby Boomers” were to blame.

Is it me, or does the so-called “Money Honey” appear seriously rattled by this forecast?

“Get Ready for Dow 3K”
CNBC Video

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)


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Tuesday, August 7th, 2012 Debt Crisis, Investing, Spending, Stocks No Comments

The Crash Prophets

Vice President Dick Cheney says that his boss, President George W. Bush, has no need to apologize to the American people for not doing more to head off the financial calamity, saying no one saw the crisis coming.

During an interview Thursday with The Associated Press in his West Wing office, Cheney defended the administration’s performance on an economy that is growing weaker daily and which recently collapsed in spectacular fashion. Cheney said that “nobody anywhere was smart enough to figure it out.”

-Associated Press, January 8, 2009

Crash Prophets
June 14, 2007

Yesterday I read an article on MarketWatch that I want to share with you. Mutual funds columnist Paul Farrell wrote “‘Pop!’ Bubbles are great for America!” in response to author Daniel Gross’ new book Pop!: Why Bubbles Are Great For The Economy. In all fairness, I haven’t had a chance to read the book yet. But from what I’ve heard so far, Gross argues that economic bubbles and their subsequent popping are not to be feared, as innovation and infrastructure are utilized in the bubble’s aftermath to spur new economic growth. Rather than placing a positive spin on this “creative destruction,” Farrell sympathizes with the Main Street investors squashed by the popping of these bubbles. More importantly, he points out several prominent market watchers who are warning us that we are in the midst of economic bubbles today.

Richard Bookstaber, a risk manager and derivatives designer, played a role in the 1987 Wall Street crash and 1998 LTCM collapse. In his new book, A Demon of Our Own Design: Markets, Hedge Funds and the Perils of Financial Innovation, he says, “The financial markets that we have constructed have become so complex. And the speed of transactions so fast that apparently isolated actions and even minor events can have catastrophic consequences.” In the Wall Street Journal on May 18, Bookstaber warned, “The odds are pretty high that we’ll see other dislocations that match the type of turmoil we saw with the crash in 1987 and with the LTCM crisis- Any one derivative, with some exceptions, may be easy to track. But by the time you layer a lot of them one on top of the other, it becomes increasingly complex, so a small, unexpected event can propagate in surprising and nonlinear ways — and there’s no way to anticipate all these possible events.”

Peter Bernstein, a Wall Street legend who encouraged Bookstaber to write his book, is also deeply worried about the threat posed by derivatives. Bernstein, author of the just-released Capital Ideas Evolving and 1992’s Capital Ideas, fears derivatives because of the number of inexperienced investors (speculators) utilizing them. Farrell adds, “Meanwhile, the irrational exuberance of all the inexperienced masses continues blowing the bubble while “playing” with $370 trillion in derivatives worldwide.”

Legendary value investor Jeremy Grantham, chairman of the global investment management firm Grantham Mayo Van Otterloo (GMO), said in a recent letter to shareholders we are now witnessing the first global bubble in history, covering all asset classes. “From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it’s bubble time!” Grantham adds, “Everyone, everywhere is reinforcing one another. Wherever you travel you will hear it confirmed that ‘they don’t make any more land,’ and that “with these growth rates and low interest rates, equity markets must keep rising,’ and ‘private equity will continue to drive the markets.’”

Finally, economist Gary Shilling says the United States is fast approaching a financial storm in his INSIGHT newsletter. He notes, “An unusual confluence of five forces in recent years created a virtual world of financial speculation that departed spectacularly from the real economic world, the ‘grand disconnect’ we’ve called it.” The five forces, according to Farrell, are:

1. Global liquidity.
2. Investors’ misguided belief in “20% annual returns each and every year.”
3. Risk desensitization due to recent low volatility and the belief the Fed will “bail them out.”
4. Rampant, aggressive speculation.
5. American consumer spending, highlighted by instant gratification and the inability to save.

And what will trigger the meltdown? According to Farrell, Shilling still sees the subprime debacle as the catalyst. But like Bernstein, Bookstaber and Grantham, he also feels the “speculative excesses” of private equity deals may preempt the subprime blowup. In addition, Bookstaber fears that financial derivatives and hedge funds will prick the bubbles. Regardless, the most important thing to realize is that a number of threats exist simultaneously, thereby increasing the odds for a major financial crisis in the United States and beyond.

To be continued…

Crash Prophets, Part 2
June 15, 2007

In yesterday’s blog post, I talked about how some market watchers, specifically Richard Bookstaber, Peter Bernstein, Jeremy Grantham, and Gary Shilling, are warning of a fast-approaching U.S. financial crisis. Continuing the theme of “crash prophets,” today’s post focuses on legendary investors George Soros, Warren Buffett, and Jim Rogers, and what each is saying about the future of the U.S. economy.

George Soros is a Hungarian-born billionaire investor, philanthropist and author. The American businessman is known as “The Man Who Broke the Bank of England” as he earned $1.1 billion after speculating on the British pound in 1992, believing it was overvalued. He is also recognized for his involvement with the Quantum Fund, one of the most successful investment funds ever with an average annual return of 31% throughout its 30-year history. Back in January 2006, George Soros told an audience in Singapore that, “The soft landing (for the U.S. economy) will turn into a hard landing. That’s why I expect the recession to occur in 2007, not 2006.” Soros explained that a slowing U.S. housing market would be the catalyst for a U.S. recession in 2007. Back on June 2, 2007, AME Info quoted Soros as saying, “I believe the global economy has been sustained by a housing boom that took on the characteristics of a bubble,” and he cautioned, “I expect an initial soft landing to turn into a hard one when the slowdown does not end.” On the U.S. and global economy, “A slowdown in the United States will be transmitted to the rest of the world via a weaker dollar. That is why I expect a worldwide slowdown starting in 2007.” Finally, Mr. Soros stated that, “The savings of the world are sucked up into the center to finance over consumption by the richest and largest country, the United States. This cannot continue indefinitely and when it stops the global economy will suffer from a deficiency of demand.”

Warren Buffett, “The Oracle of Omaha,” is a famous investor, head of Berkshire Hathaway, and also the world’s second richest man. On October 26, 2003, Warren Buffet wrote a piece for Fortune entitled “Why I’m not buying the U.S. dollar.” Although a little dated, this article, and Buffett’s subsequent bet against the dollar, gives us insight as to where Mr. Buffett thinks the U.S. dollar and economy are going. Buffett said, “I started way back in 1987 to publicly worry about our mounting trade deficits — and, as you know, we’ve not only survived but also thrived. So on the trade front, score at least one “wolf” for me. Nevertheless, I am crying wolf again and this time backing it with Berkshire Hathaway’s money.” Regarding his actions on the U.S. dollar, he explains, “And my reason for finally putting my money where my mouth has been so long is that our trade deficit has greatly worsened, to the point that our country’s “net worth,” so to speak, is now being transferred abroad at an alarming rate.” On the United States having avoided a financial crisis so far, Buffett says, “We were taught in Economics 101 that countries could not for long sustain large, ever-growing trade deficits. At a point, so it was claimed, the spree of the consumption-happy nation would be braked by currency-rate adjustments and by the unwillingness of creditor countries to accept an endless flow of IOUs from the big spenders. And that’s the way it has indeed worked for the rest of the world, as we can see by the abrupt shutoffs of credit that many profligate nations have suffered in recent decades. The U.S., however, enjoys special status. In effect, we can behave today as we wish because our past financial behavior was so exemplary — and because we are so rich. Neither our capacity nor our intention to pay is questioned, and we continue to have a mountain of desirable assets to trade for consumables. In other words, our national credit card allows us to charge truly breathtaking amounts. But that card’s credit line is not limitless.” Finally, Mr. Buffett closes with a warning to all those who think the trade deficit is just another obstacle that can be overcome. “We still have a truly remarkable country and economy. But I believe that in the trade deficit we also have a problem that is going to test all of our abilities to find a solution. A gently declining dollar will not provide the answer. True, it would reduce our trade deficit to a degree, but not by enough to halt the outflow of our country’s net worth and the resulting growth in our investment-income deficit.”

Jim Rogers is a legendary commodities trader who picked the bottom of the commodities bull market in 1999. He is also one of the co-founders of the Quantum Fund, along with George Soros. Of the three investors profiled, Rogers is the most vocal regarding the direction the U.S. is headed. In a Reuters article on December 16, 2006, Jim Rogers talked about the future of the U.S. dollar, and predicted, “It’s only a matter of time before the beleaguered U.S. dollar loses its status as the world’s reserve currency and medium of exchange.” He added, “The dollar is a terribly flawed currency- You should hold as few dollars as possible. The dollar’s decline would go on for years to come.” In an interview with iTulip on April 3, 2007, Rogers said that a U.S. recession will occur soon. “I see a recession, and for a variety of reasons. Automobiles are in recession. Housing is in recession. There’s been an inverted yield curve for a while. You have a slowdown in business spending. The subprime mortgage and junk bond markets are a disaster happening or waiting to happen in the financial area. There are plenty of things going on. Plus we’ve had recessions every four to eight years since the beginning of time, so there’ nothing unusual about the fact that we’re about to have another one.” On housing, Jim Rogers is especially bearish. In the same iTulip interview, he responded to a question about the housing downturn and the consensus of economists that the correction is largely over by replying, “It has a good long way to go because never before in American history have so many people been able to buy houses with no money down. Even during the 1920s when the banks first tried interest-only mortgages borrowers at least had to put some money down. This time a lot of borrowers have put no money down on interest only mortgages. The results will be much worse.” In a May 14, 2007, Reuters article, he predicts an eventual U.S. real estate crash. Rogers said, “You can’t believe how bad it’s going to get before it gets any better.” He adds, “It’s going to be a disaster for many people who don’t have a clue about what happens when a real estate bubble pops- Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it’ll be worse because we haven’t had this kind of speculative buying in U.S. history.”

“When markets turn from bubble to reality, a lot of people get burned.”

To be continued…

Crash Prophets, Part 3
June 21, 2007

In the previous “Crash Prophets” posts, we examined the U.S. economic outlook of key market watchers and investment legends. Today, the focus is on U.S. government and Federal Reserve officials, both past and present. Specifically, I am talking about former Treasury Secretary Robert Rubin, U.S. Comptroller General and Head of the U.S. General Accountability Office David Walker, and former Federal Reserve Chairman Paul Volcker.

Robert Rubin served as Treasury Secretary under President Bill Clinton. On January 22, Rubin appeared on the Charlie Rose television show and talked about the U.S. economy becoming increasingly unsound, and the need for “excruciating decisions” to be made. He explained, “I think we face [huge] challenges. I think we can do very well in what is really a transformed global economic environment with the rise of China and India. But- I think we’re on the wrong track on almost every front right now, regardless of how you allocate the political responsibility, and what I’d like to see the new Congress do- and I think they’ve gotten off to a very good start in this respect- is to address those challenges.” Rubin added, “I think we’ve got to re-establish sound fiscal conditions- so we have an environment conducive to growth, and also to avoid the dangers that, as [Federal Reserve Chairman] Ben Bernanke said very recently in his congressional testimony, [underlie] unsound fiscal conditions. I think that’s a tremendous threat to the global economy.” Regarding the deficit and its threat to the dollar, the former Treasury Secretary predicted, “If the current account deficit doesn’t change, then at some point something is going to have to give. It seems to me that it’s very likely there’s going to have to be an adjustment of the dollar. The way to minimize the adjustment that you need is to have sound policy.” In a videotaped message for a dinner hosted by the Concord Coalition in New York last November, Mr. Rubin emphasized that the U.S. budget situation needed to be addressed now because the government was just 5 years away from “rapid acceleration” in spending related to Social Security and Medicare.

The tremendous financial burden brought on by entitlements also frightens David Walker, who is basically the nation’s accountant-in-chief. Walker is touring the United States through the 2008 elections, and according to Bloomberg, is “talking to anybody who will listen about the fiscal black hole Washington has dug itself, the ‘demographic tsunami’ that will come when the baby boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government.” His speaking tour includes economists and budget analysts from across the political spectrum. The message they are conveying is that if the U.S government continues to conduct business as usual in the coming years, the national debt ($8.8 trillion as of today) could reach $46 trillion or more, adjusted for inflation. Every year of inaction adds $2 trillion to $3 trillion, according to Walker. With the first baby boomers becoming eligible for Social Security in 2008 and for Medicare in 2011, the expenses for these two programs are about to increase significantly. In addition, the U.S. government has spent the last few years racking up debt and borrowing money from foreign lenders. If overseas investors lose their enthusiasm for purchasing U.S. debt, the result will be higher interest rates in the United States. A large jump in interest rates would be a disaster, in which case some economists predict the federal government would print money to pay off its debt, leading to runaway inflation.

Known for his stance against inflation, Paul Volcker was Federal Reserve Chairman from 1979 to 1987 and the predecessor of Alan Greenspan. At a dinner hosted by the Concord Coalition in New York last November, Volcker predicted that the United States’ dependence on foreign money raises the risk of a crisis in the dollar as soon as the next two and a half years. He said, “It’s incredible people have gone on so long holding dollars… At some point, you will get a situation where people have had enough.” Foreign investors now own about half of the $4.4 trillion of Treasuries outstanding. On April 10, 2005, Volcker talked about the U.S. economy in the Washington Post, and said, “Yet, under the placid surface, there are disturbing trends: huge imbalances, disequilibria, risks— call them what you will… What really concerns me is that there seems to be so little willingness or capacity to do much about it.” He added, “As a nation we are consuming and investing about 6 percent more than we are producing. The difficulty is that this seemingly comfortable pattern can’t go on indefinitely… I don’t know of any country that has managed to consume and invest 6 percent more than it produces for long. The United States is absorbing about 80 percent of the net flow of international capital. And at some point, both central banks and private institutions will have their fill of dollars.” Finally, Volcker speculated, “I don’t know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change.”

Robert Rubin, David Walker, and Paul Volcker insist that the U.S. government must act now to prevent a U.S. financial disaster. As the former Federal Reserve Chairman recalled, “A wise observer of the economic scene once commented that ‘what can be left to later, usually is— and then, alas, it’s too late.’ I don’t want to let that stand as the epitaph of what has been an unparalleled period of success for the American economy and of enormous potential for the world at large.”


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