The Great Crash is Harry Dent's best book, and I strongly recommend it.
Economic doomsaying is nothing new. Howard Ruff and others sold a lot of books in the 1970s advising people to buy gold and silver to survive the "certain" financial disaster that never happened.
And many others now are predicting either hyperinflation or deflation will soon destroy the world's economy.
Dent is different because he doesn't just rail against excess government spending like an Old Testament prophet, but points out a dimension of society ignored by most economists: demographics.
In the late 1980s, while the perennial Chicken Littles were claiming the sky would fall because of the size of the government's budget then, Dent said the 1990s and 2000s would be an economic boom time. Why? Because the baby boomer generation would be entering its greatest earning and spending years.
He also pointed out (yes, 20 years ago) that this would end around 2010 or so, and there'd be a crash, a depression that would probably dwarf the 1930s lasting until around 2024.
We've lived through the boom, and now we're entering the crash, so that's what this book is about.
The theme of this book is that the huge amount of debt we've created at all levels from you and me to all developed country governments -- combined with the aging of the baby boomers and the consequent change in their spending and investing patterns -- is going to slow the world's economic growth for years to come.
In fact, it's going to create a situation that frightens the powers that be --justifiably -- far more than inflation:
Deflation.
Much of the book is taken up with examining the history of the crisis. The government and personal debt that so frightened people in the 1970s is, interestingly, a tiny blip compared to current levels of debt.
Thanks to the financial crisis as individuals we have less debt than in 2008, but still far too much -- especially mortgages on houses that aren't worth what we paid for them. Companies owe too much. State and local governments owe too much. The federal government owes too much. (Not even counting the unfunded liabilities of Social Security and Medicare). China and Japan owe too much. And, we've learned recently, many European countries owe too much.
There's no way we're going to pay off the trillions of dollars owed around the world.
Much of it will have to written off. That's the purpose of depressions -- to wring excess debt out of the system, so we can get on with building the next boom time.
But because it's painful, politicians are determined to avoid it. That's why the chairman of the US Federal Reserve System is working overtime to create new dollars, to keep the current system running.
Many current financial doomsayers look at how the government is running the printing presses overtime and are predicting runaway inflation.
Dent says you can't force 60 year old boomers to stop saving for retirement and buy new cars, houses and gadgets -- especially when they're afraid of losing their jobs.
Therefore, once the Fed's extraordinary efforts to keep the economy going fail (and that appears to have started), the crash is going to be deflationary.
That means continued high unemployment, lower prices in general, a collapse in the price of gold, and (wonder of wonders), higher interest rates leading to . . . (drumroll!) . . . a strong US dollar.
Given the current state of the euro (and the determination of Japan's central bank to keep the yen from going up in value), that doesn't sound quite as crazy now as it would have last year.
Dent gives advice on surviving (and profiting from) the crash that is so different than what you usually hear (and ironic given the S&P's recent revaluation of the US government's credit rating) that not everybody will agree with it.
This is a book many will argue with. However, you can't beat Dent on the facts. He backs up everything he says.
You can argue his interpretation, and his conclusion that we're in for a period of deflation -- while most are telling you to buy gold to hedge against hyperinflation.
The foundation of investment risk management is diversification. Placing your "bets" entirely on either hyperinflation or deflation risks the other happening (or, incredible as it seems, neither -- the world's economy has been muddling along for decades, so maybe it will somehow continue to do so), so I stand by my advise in
Bring on the Crash! A 3-Step Practical Survival Guide: Prepare for Economic Collapse and Come Out Wealthier to invest in things that people need whether the economy and the markets are up or down.
(Hint: people need food and energy to survive, but NOT gold.)
The problem with predicting the future is that things happen you don't predict. I wouldn't use Dent's projections to "trade" the stock market. He has a poor short-term record. He predicted that before this crash came, the stock market would experience a boom that would dwarf the late 1990s. We know that never materialized.
But he has a great long-term, "big picture" record. Before you sell all your stocks and bonds to buy gold, you need to read his arguments for deflation.
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