Harry Truman, frustrated by economists who couched their opinions by saying “On the one hand…but on the other hand,” wanted a one-handed economist. I’ve got one. James Fitzgibbon, director of the Highlander Fund, has been spot on in predicting the course of economic events for the past three years. As each estimate of GDP growth came in, I would e mail him and he would explain that the growth rate was materially overstated and then explain that it would soon be adjusted downward. And it was. He has been accurate in predicting a long, long term recession with only a few “false dawns” for recovery.
Now comes a truly terrifying email from James. He writes, “This is the start of the real deal.” The things I forecast six months ago are now obvious to some but still not all.” He writes that “We have begun the second phase of the meltdown.” He predicts that “Stocks, real estate will collapse and keep falling into 2013. The lows of 2009 will be easily taken out on the downside.”
From the start, Fitzgibbon has been impressing on me that we are not facing the normal business cycle of boom and bust, but that we are in the midst of a debt repudiation cycle which comes every fifty or sixty years as debt piles up so high that borrowers stop borrowing and lenders stop lending. With a global GDP of $60 trillion, we now have global corporate, personal and government debt equal to $160 billion (this does not include liability for pensions or social security down the road, but only current debt).
So now he says that the debt deal for deficit reduction recently passed by Congress “Is neither the cause nor a solution to these issues. The indebtedness is too great and has been dragging us down for too long to make any difference at all.” He notes that our debt/GDP ratio is now 135% and that “You have to add in Fannie Mae and Freddie Mac to the US Government public sector debt to get the correct debt balance of $20 trillion vs. a GDP of $14.8 trillion.”
He says “The real horror will be later in the year when the US Treasury Bond goes into a freefall. Then a depression is possible. Soaring interest rates. Collapsing asset values. Contracting economic activity. Surging unemployment. And business closures.”
A Republican, he lamely adds “If I have any good news for you it is that the worst of this comes in 2012 into 2013 and we should be rid of Obama and his minions.”
Thanks a lot.
As Joseph said in the Bible when he predicted seven good years followed by seven lean ones, that he cannot be certain his prophesy will be fulfilled but “I have never been wrong before.” This warning from Fitzgibbon is truly sobering and downright scary.