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Gloom and Doom Story
Our Nation in Peril
by Robert B. Gordon,
Sc. D.
February 2, 2003
Will 2003 be the year that U.S. financial analysts and investors finally come to grips with reality? Stubborn bullishness in Wall Street and in the minds of investors hoping to regain their huge paper losses may very well change during this fourth bear market year. Optimistic hope for recovery from our weak economy may also change as the stock market resumes its relentless downturn. But there are even more serious concerns about this nation’s future.
The continued political in-fighting in Washington as our nation and the world face an unprecedented economic crisis appears to have reached almost criminal proportions on the part of some politicians involved. Fomenting class warfare over who gets tax cuts or Medicare benefits while our country is slipping into a severe depression and a prolonged war against the "barbarians", reminds me of some of the excesses highlighted in Edward Gibbon’s classic three volume masterpiece "The Decline and Fall of Rome."
Recently, while listening to the long broadcast address of Democratic presidential candidate, Lyndon La Rouche, I was impressed by two of his many statements. Especially important to me was his clear understanding of the "once in a century" scale of the financial collapse now underway here and abroad. That was the very first strong statement of recognition I have heard from a national figure of his stature. Then, amidst his many forceful comments on Washington leaders and politicians in both parties, was a wake-up reminder that America today displays some characteristics similar to those before the decline of the Roman Empire. For much of my adult life, I have been reading little press quotes about "excessive paperwork", or "heavy tax burdens", or "political corruption" that seemed to be quite contemporary but were actually quotations from ancient Rome. So, although America may very well not begin our final collapse in this century, warning signs of problem areas are appearing to observers with their eyes wide open.
THE COLLAPSE OF ROME
The following is taken from a course outline of the University of San Diego:
The
Collapse in the West - 5th century AD
Chronology:
378 - Visigoths victorious at Adrianople
407 - Vandals break Rhine frontier
410 - Rome sacked
476 - Last Roman Emperor deposed
546 - Rome abandoned; regional trade collapses;
villas deserted
Why did the Western Empire collapse?
Extrinsic causes: strength of
invaders
Germanic Tribes
(Franks, Goths and Saxons)
Mongolic Tribes (Avars,
Bulgars and Magyars)
Intrinsic causes: weakness of defenders
Plague
Inflation
Overtaxation
Lack of public
spirit
Military failure
size and composition
fortifications
discipline
The list of internal failures cited above includes several current problems that are clearly evident in our country today. Why do the real tough problems languish while our scientists work on a means to change the orbit of an asteroid headed for earth. Why do so many worry about global warming and other problems that may be normal long term changes beyond our real control? We have enough serious man-made problems here to keep us busy.
In this paper, I want to emphasize the crucial lack of understanding and leadership existing in our country today. As an initial prerequisite, before our leaders can act there must but a full and complete understanding of the problem.
DEFINING OUR MAJOR PROBLEM
Our great country has many recognized problems - education, crime, poverty, drugs and pollution to mention a few. But our enormous present problem, the aftermath of the world’s greatest ever stock mania, is not yet recognized as major by our nation’s political and corporate leaders and especially by those in Wall Street. Only a small minority of traders and investors, following the Elliott Wave Principle, and knowing the history of all previous Manias, understand the crisis that lies ahead.
To start solving any serious problem, the first job of the responsible leaders is to understand its true nature and the past history of similar problems. Since only a handful of experts, writing on the Internet, understand the cause and magnitude of what we are now facing, there is surely going to be no quick fix to the financial calamity now facing our country and the world. We cannot send our government leaders back to school in a course where Ralph Elliott’s classic "Elliott Wave Principle" is required reading. If we could take this first step, we might also ask them to read the predictions in the 1997 edition of Robert Prechter’s brilliant book "At the Crest of the Tidal Wave." Every dire event mentioned in that monumental book is currently occurring. It should have been required reading for every leader in this nation years ago - a great failure of our educational system.
But of course we cannot send anyone back to school. Our political leaders are not supposed to be experts in any field other than raising campaign contributions or, if elected to Congress, raising their own salaries and pensions surreptitiously. When our President or Congress need expert opinions on any subject, they call in the best available experts from business or academia. Recently they called on the nation’s expert economists for advice. Unfortunately none of these experts have read the two books just cited and consequently do not have the slightest idea of what is now taking place, let alone what caused it.
So, here we are in year 2003, with both our leaders and experts exploring solutions to a huge problem whose cause or effects they do not know or whose aftermath they can not imagine. They are like blind rowers hopelessly trying to prevent their boat from going over a huge waterfall. And since our leaders do not yet recognize the true size and scope of our disaster, they probably sleep better each night than the tiny minority who do know what is going on.
THREE GENERATIONS OF DISBELIEF
Throughout my entire adult life, there has been an almost universal belief that our 1929 experience was a one-of-a-kind event. Of course, most of the adults that lost heavily in the 1929 crash never again returned to the stock markets, so this group, for sure, did believe it could and would happen again. The Go-Go years in the mid 1960’s and the 1972-74 crash did produce some pessimists. For instance, there were 9 years of net redemptions from mutual funds after 1974. Then, the short and very sharp1987 crash scared at least some investors, including a very close friend, from ever owning stocks again.
But something very different happened in the 1990s and in the first 3 years of this bear market. People were acclimated to hold for the long term and buy the dips and began to believe the old line about "stocks always go up in the long term." So there has been only a trickle of redemptions so far from equity mutual funds.
In the financial world and in Washington, optimism about a 1929 crash never happening grew so great that Congress repealed all the safe banking laws that were passed while the 1929 crash was still a very strong memory. Will this foolish, reckless act be repeated again by some future Congress? Almost certainly, if political contributions from Wall Street are not banned.
ADDING FUEL TO THE FIRE
Despite learned books about previous stock market manias, the possibility of another 1929 type crash and depression has never been seriously considered by our leaders and so-called experts. Even with the current, stark example of Japan being mired in a severe depression 13 years after its stock and real estate markets crashed, almost no one in the U.S. thought it could be repeated in this country. This almost unbelievable "head in the sand" attitude still continues today in many quarters. Knowledgeable U.S. experts have published stock chart comparisons of our current bear market with those in 1929 and in Japan since 1989. They show surprising similarities. Still, Wall Street continues to predict a market bottom almost daily. Students of the Elliott Wave Principle continue to predict a multi-decade bear market with the Dow index eventually dropping below 1000.
Bill Fleckenstein, experienced fund manager and market observer, in his current Weekly Rap on MSN titled "Why the lousy market? It’s the Fed stupid" has written:
"As the Iraq battle looms, the battle of the stock-market bubble lingers. The policies of its founding father, Federal Reserve Chairman Alan Greenspan, continue to inflict widespread pain. But to judge by the headlines in the mainstream financial media, all our troubles fall at the doorstep of Saddam. While news of his "departure" cannot come soon enough, it's high time that Alan Greenspan's pivotal role in our problems made headlines as well.
I'd like to review my thoughts about our chief central banker. The bubble that was fomented under his watch during the 1990s precipitated the wild misallocation of capital and recklessness on the part of individuals who believed that Greenspan would save them. While this illusion held sway, people believed in flights of fancy like Internet stocks, stock splits, "beat the number," etc. The fervor of their belief was ultimately expressed in the Nasdaq reaching its 5,048.62 peak in March 2000.
The unwinding of that wild orgy is still our problem, exacerbated by a Fed and government still determined to fight off the "destructive side of capitalism." Capitalism is the best economic system around, but it does come with bad times that follow good times. Of course, those bad times help set the stage for the next round of good times. Trying to stop the destructive side of capitalism only leads to huge problems. In the 1990s, the Fed believed it was an omnipotent central planning agency, capable of steering us from good times to better times. Regrettably, lots of people checked their thinking caps and common sense at the door, as they willingly suspended disbelief. So, to that extent, they were not blameless.
However, more should be expected of Fed officials. Sadly, Alan Greenspan refused to stand up like an adult and, in the words of one of his great predecessors, William McChesney Martin, "Take away the punch bowl." (Martin was Fed chairman from 1951 to 1970 -- the longest tenure ever in the post.) The excess capacity, reckless behavior and accumulation of debt spawned by a bubble that Greenspan fed are still the problems that plague us. Only time will cure those problems.
Last September Greenspan gave a speech in Jackson Hole, Wyo., saying he’d missed the stock-market bubble. This admission of the bubble should mark the start of the process that ends in his being completely discredited. Yes, before this is all through, people will see that their apparent maestro is, in fact, the most incompetent and irresponsible Fed chairman in history. And sadly, lots of them will pay for his experiments and subsequent mistakes.
Alan Greenspan, our once highly respected Federal Reserve head, not only failed to combat the stock mania when it might have done some good but now says that he could not have stopped it even if he had recognized it. So, what did he do after the market peak? He effected massive interest rate reductions that failed to work in 1929 and in Japan after 1989. They did not work this time either but have caused grave additional problems from huge credit and real estate bubbles."
The true history of all major stock manias is that there is only one process that finally brings them to an end - the complete correction and undoing of all the excesses that caused the mania. History shows that every completed mania didn’t end until stock prices eventually fell below the starting level. In 1929, stocks started at 100, rose to nearly 400 and bottomed at 42! Any attempt to forestall the correction, as is occurring now, simply adds to the duration and severity of the healing process. So far our "experts" have failed to learn this basic fact from the past and recent disasters. Will they ever learn? Only time will tell.
SAVING AND RE-UNITING THIS COUNTRY
The time for recognition of our approaching disaster may be close at hand. The major stock markets of the world have either just broken through last years lows or are now in the process of doing so. It is possible that in a few months the world’s financial community and leaders will recognize the true magnitude of what is now taking place. But it is also quite possible that the present state of disbelief and non-recognitions will continue.
Eventually, either through one great panic drop in the market or a succession of smaller drops, our leaders and the entire nation will come face to face with grim reality. Unemployment will reach record proportions. Wall Street will again become a desolate area. But, under extreme stress and with new leadership, a leaner and stronger America will eventually emerge. The ordeal will be long and difficult and America’s strengths will be tested.
Having lived as a college student through most of the Great Depression, I now know that the even greater trial we will soon be going through will test this nation to it’s core. I am also optimistic that, under extreme pressure, it will find ways to survive. It will not be easy. Our charitable and social service agencies will be taxed well beyond any previous time in our history. Massive efforts will be needed to feed the needy. State and Federal work projects will have to be organized and funded. There may be some benefits. Friends and neighbors may be reunited. Three generation households, such as I grew up in, will return. Obesity may drop. Auto deaths may drop. Television advertising may drop. More adults will vote. General health may improve. Divorces may drop. More lawyers may file for bankruptcy etc. etc.
WHAT CAN WE AS INDIVIDUALS DO?
We can educate our children, parents and friends to what is really going on. We can send copies of this and other writings to our local media, both press, radio and TV. But most important, we must build our individual financial fortress to see us through the hard times ahead. I have been spending all of my available time in the past 18 months to write over 70 essays and respond to reader requests for general, not specific assistance. I will continue to do so to the best of my ability. I hope that each of you will do what you can to inform people in your own communities and to eventually join in the massive efforts to keep our great country afloat in stormy seas.
FINANCIAL ADVISORS
Two weeks after our essay "Questions to Ask A Financial Advisor" was posted, we are still receiving and answering reader e-mails. We continue to believe that these three firms do understand the serious nature of this bear market and are prepared to deal with it. We will continue to provide their addresses so long as the e-mail requests continue.
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© 2003 Robert B. Gordon, Sc.
D.
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Robert
B. Gordon, Sc. D.
Sun City West, Arizona
February 2, 2003
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