March 30, 2007 10:25

Hard times ahead (maybe)

My latest column is up online, and in the issue of Time with the penguin on the cover. It begins:

There are those who fret that current troubles in real estate will lead to an economic slowdown, maybe a recession. Then there's Peter Schiff. "Our standard of living is going to decline," the Connecticut stockbroker confidently declares. "There's no way around it, and it has just started."

Schiff owns Euro Pacific Capital, a smallish firm that specializes in moving clients' money into nondollar assets like foreign stocks and bonds. Over the past couple of years, he has become a regular, hectoring presence on cable-TV business shows--on CNBC they call him "Dr. Doom." Now he has a book out, ominously titled Crash Proof: How to Profit from the Coming Economic Collapse.

It isn't the only such cheery tome on shelves these days. In Financial Armageddon: Protecting Your Future from Four Impending Catastrophes, trader Michael Panzner warns of an economic meltdown that will lead to Zimbabwe-style hyperinflation and possible martial law. In Empire of Debt: The Rise of an Epic Financial Crisis, which briefly hit business best-seller lists in 2005 and will feature next year in a documentary film by the makers of acclaimed crossword-puzzle geekfest Wordplay, financial-newsletter authors William Bonner and Addison Wiggin draw parallels between the early 21st century U.S. and the decline of Rome and imperial Spain. There are more such jeremiads on sale. I just don't want to use up all my space listing them. Read more.

My general tendency over the years has been not to take such people at all seriously. And I still think their dire predictions should be consumed with many grains of salt (I personally recommend Maldon sea salt, which comes not so much in grains as in flakes). But in talking to Schiff, Panzner and Wiggin I found to my alarm that I entirely share their concern that the last recession didn't do the usual recessionary work of getting people to cut back on spending and especially borrowing. So now American consumers are bearing debt loads of unprecedented proportions that a lot of people--if the subprime mess is any indication--are going to have trouble paying back. And when that happens, things might get pretty ugly.