Book Review: Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown
Lavishly praised by world-class experts, this hard-hitting book predicted in 2010 that the financial crisis of the past few years would turn into a greater, even total, financial meltdown. A new edition, about to be released, updates these predictions and intensifies the warnings. Though they focus on the American economy, the authors emphasize that the impact of this coming crisis will devastate the world, including China. If they are right, the implications are sobering.Their thesis finds fresh support from recent events and from other sources, such as an article about China which likewise forecasts a sharp economic decline for the world’s economic superstar. (See Bryan Rich, “All eyes on Europe… While China Quietly Weakens,” Money and Markets, July 9, 2011).Briefly: The authors explained that the U.S. economy is a multi-bubble economy, in which “six co-linked bubbles have been growing bigger and bigger, each working to lift the others, all booming and supporting the U.S. economy”: The real estate bubble; the stock market bubble; the private debt bubble; the discretionary spending bubble; the dollar bubble; the government debt bubble.Part I describes the coming economic and financial tsunami.“The first four of these bubbles began to burst in the Bubblequake that rocked the U.S. and world economies in late 2008 and 2009. Next, while most people think the worst is over, the coming Aftershock will bring down all six bubbles in the next two to four years,” totally changing the economic face of the U.S. and of the world.Houses are still over-priced, and values must fall dramatically. The stock market is over-priced, fueled by money created by other bubbles and by the Fed. Assuming a constantly-growing economy, consumers and corporations took out loans they thought would be covered by ever-rising asset prices, which have since fallen, creating a private debt bubble.Private spending accounts for 70% of the nation’s economy, but the collapse of the private debt bubble further restricts money available for non-discretionary purchases. Meanwhile, the US dollar rose in apparent value because of “rising demand for dollars to make investments in our bubbles.” Now the falling bubbles will eventually create falling-value dollars.”Worst of all, “the whopping U.S. government debt bubble is currently the biggest, baddest, scariest bubble of all.” Eventually, the foreign buyers who have supported this bubble will no longer buy, and the withdrawal of their funds will bring the whole house of cards tumbling down.Just as the rest of the world profited from the U.S. bubble economy, so will it be devastated when all the bubbles burst. This will set off a world-wide “Bubblequake” that will wipe out trillions of dollars around the globe and deal a heavy blow to the economies of Europe, Russia, India, China, and the Asian “tigers” which have grown along with the U.S.Foreign investors are discovering that the U.S. is a poor risk, with low returns; already, they have begun diverting funds elsewhere. When this trickle becomes a flood – which the authors predicted would happen sometime in 2011 or 2012 – we shall see a “triple double-digit”: Double-digit unemployment; double-digit inflation; double-digit interest rates. As I write this, we already have the first; the second may be upon us, if we factor in food and fuel; and the last is almost inevitable, as the PIIGs are beginning to discover.For a variety of reasons, inflation will run wild, and the dollar will lose most of its value.“Politically and socially, it’s bound to be a difficult time.”Surprisingly, however, the authors predict that “the U.S. will suffer the least,” followed by Western Europe; Japan and Eastern Europe; then, China, India, and Brazil. Most of all, of course, “the poorest, most underdeveloped countries in Africa and elsewhere will do quite badly indeed.”“None will suffer the pain of crushed expectations more than China,” as its exports to the U.S. and Europe dry up; its U.S. dollar and Euro holdings evaporate in value; its own bubble-economy will burst “with devastating force”; and “massive unemployment… and inflation” will occur “as the government is forced to print more money.” “All of these difficulties will create a populace that is much more supportive of political change in China.”(Of course, as others have pointed out, the liquidation of China’s holdings of increasingly worthless American government debt would eventually be good for its economy, but the transition to a more realistic relationship could be quite painful.)Likewise, the countries of the Middle East will be devastated, “and like China, the global mega-depression will likely accelerate political turmoil.”Part II of the book offers helpful advice on how to avoid the dangers of the coming “Bubblequake” and even profit from it. Part III offers “A New View of the Economy”Using what they term a STEP (science, technology, economics, politics) evolution model, they predict a paperless financial system and a “single international currency.”One of their more intriguing calls is for a U.S. government that cannot borrow money, and thus must make “massive and spending cuts,” which will be “coupled with big increases in taxes.” (Just such a scenario now unfolding in Washington this month.) Jobs will be scarce; loans will be hard for businesses to get; the economy will become “a little bit chaotic for a while.”Eventually, foreign investors will find the U.S. attractive again, but not before “the difficult economy” creates “social unrest, but not chaos.” “Life will be much better than in the Great Depression, but it will feel much worse,” because our unrealistic expectations will be so utterly crushed.There’s more to the book, of course, but for now let us consider briefly some of the implications for those who are interested in China.If the American economy slows further, China’s exports will suffer. The decline in demand from a faltering Europe will strike another blow at the manufacturing sector in China. Unemployment will rise, fueling social instability and perhaps even political protest. Who knows what will follow? If the Communist Party completely loses legitimacy, will the Army take over and install a government based on traditional Chinese culture (something that the communists have been moving towards for several years now)? In that scenario, what is the potential fallout for Christians?Currently, the close link between the Chinese and American economies, along with other factors, has put a check on nationalist urges to conquer Taiwan. If the Chinese no longer need the U.S., and if the American military is eviscerated by major cults in the defense budget, then Taiwan’s days of de facto autonomy may be over. Such a move might unify an unhappy populace behind a struggling regime, at least temporarily.It’s hard to say whether more Chinese will return home after studying in the West, since jobs may not be as easy to find in China as they are now, but such a reverse migration is conceivable.At the very least, we can predict that a further rise in unemployment or inflation– or both, which these authors foresee – in America will drastically cut funds available for many types of Christian outreach to China, especially high-expense language study programs that do not actually bring results. Only those with unusually strong financial backing from the west, or those sustainable positions in Chinese society, will enjoy long-term viability there.On the other hand, perhaps a slowdown in China’s economy will serve as a wake-up-call to people who have been mesmerized by what has hitherto seemed like an unending upward spiral of financial success. The same might happen in Taiwan, where Mammon has held sway for a long time. Would that open their hearts to the Good News of eternal life with God in Christ?