by Joseph Farah, Between The Lines Commentary
First let me say that I am a journalist, not an economist. Nothing I say in this column ought to be interpreted as personal financial advice. I am not qualified to offer it. I am, however, considered
something of an expert in my chosen profession. I observe what goes on around me, around the world, I ask questions and seek the truth about a wide variety of issues on a daily basis -- sometimes even
issues I don't initially understand very well.
Second, let me say , that I hate making predictions of any kind. People seem to have an uncanny knack for remembering when you are wrong and never crediting you when you are right.
With that little preface out of the way, I am about to venture into dangerous waters. I am going to predict -- with relative assurance -- that the U.S. economy is heading south, in a hurry and deep.
The fact of the matter is there are very few experts on the subject who don't foresee at least a mild recession on the horizon. It's inevitable because of cyclical trends as well as global conditions. The downturn is unavoidable. It's simply a question of how bad things are going to get. My educated guess is we are headed into the tank in the next 15 months.
The optimists say that there are contingency plans in the works. That should tell you how seriously they view deteriorating conditions in Russia, Japan, the rest of Asia and, for that matter, most of the rest of the world.
The world's stock markets are already in a tailspin. The Federal Reserve plans to respond to a corresponding trend here by flooding the economy with money. I believe, after studying economic history and talking to experts on the subject, that this is a fundamental error that will only compound the problem.
Instead of reacting, we ought to be analyzing how we got ourselves in this predicament in the first place. The answer to that question is through reckless lending on a global scale.
All through the good years and semi-good years, we've been hearing about the advantages of the emerging global economy. Well, my friends, there are disadvantages, too. And we are about to experience them.
Even if the United States were an economic island, we would not be spared the coming pain. Recessions always follow booms in the economy. Furthermore, the Fed has been creating artificially low interest rates that contribute to excesses in our economy. We have now begun paying the piper for these misguided policies. In recent days we have seen the reaction of the stock market. Anticipating a decline in the rate of return on capital, the speculators will withdraw.
All this is pretty obvious. You can see the early warnings in the decline of U.S. stock prices in recent days. "Corrections," they call it. Wishful thinking for a nation which has 57.6 percent of its household liquid assets invested in the stock market -- the highest percentage in the last 60 years.
But just as the United States begins facing what some will assume to be the worst of the "slump," the economy will be hit with a severe knockout punch. That blow will be delivered on or before Jan. 1, 2000,
with the wallop of the Y2K millennium bug.
Even the most optimistic projections of what the computer glitch will mean to our way of life suggest serious economic dislocations. But what if those assessments are, as I believe, overly optimistic? What
if the truth lies somewhat closer to the other extreme? What if the bug means widespread power outages, disruptions of routine services such as food and gas delivery, failures of long-forgotten embedded chips, even, God forbid, civil and social chaos and a overnment-military overreaction?
The economic recession could quickly deteriorate into an all-out depression. That's not a prediction. But it is a distinct possibility. And anyone who pretends otherwise has his head buried in the sand.
What's the answer? Don't look to government for it. The only solution may be in self-reliance, individual initiative and prudent preparedness. Consider yourself warned.
A daily radio broadcast adaptation of Joseph Farah's commentaries can be heard at ktkz.com
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