Robert Wiedemer: Awaiting the Aftershock

Bob Wiedemer, author of the best-seller The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy, regards the 2007 puncturing of housing market prices and the 2008 financial market swoon as the precedents to two much larger and much more dangerous bubbles.

These more pernicious threats are the dollar bubble ("printing money") and the government debt bubble ("borrowing money"). While both are expanding at a sickening pace, in the near term they deceptively make things seem much better than they are.

But, like all bubbles, they are unsustainable. And when these collapse, they are going to take the entire financial system, and very possibly the currency, with them (a.k.a. the "aftershock")

Bob predicts that the rupture of both these bubbles will most likely happen in the next 2-4 years and accelerate astonishingly rapidly once it begins. Part of the reason for this is that the Fed, now boxed in by its committed course of action, will print like mad to slow the process down -- which ultimately will serve instead as fuel for the fire. This will be the point at which the Fed loses control of interest rates.

Wiedemer is fairly confident that the Fed is well aware of this dire probability, but finds itself increasingly stuck to avoid it. At this point, the major financial markets (stocks, bonds, housing) are so dependent on Fed liquidity that any efforts to withdraw the punchbowl will send prices lurching downwards, threatening the weak global economy. It's now a binary choice between damned-if-it-does and dammned-if-it-doesn't.

As Chris summarizes, the Fed's main strategic consists completely of "hope." It's backup strategy? "Panic." 

Not surprisingly, Bob and Chris discuss the wisdom of focusing on preservation of purchasing power, and positioning one's financial assets safely before the aftershock arrives. For many, that will include working with a financial adviser who understands the nature of the risks in play and can help you allocate your assets accordingly (a reminder that we know a few, if you're looking).

The main thesis in Aftershock is that these bubbles – this dollar bubble and this government debt bubble – will burst. It is not as if it will not burst for 15 or 20 years. We say it is somewhere in two to four years. You need to be prepared for it.

The debt will always be funded as long as the Federal Reserve stands willing to buy all the bonds that the government sells. At some point, that creates inflation: that pushes up interest rates. The Fed will fight those interest rates going up. At first, they can do it. They just print more money. That keeps interest rates down, but ultimately that inflation will force them up. We cannot just pull the money out and raise interest rates now; it's going to pop the real estate and stock bubbles. 

What is going to happen is the Fed is going to lose control of those interest rates. When you print too much money, it gets you control short-term, but it is a recipe for losing control long-term. With those interest rates going up, what is going to pop? The stock market and real estate bubbles. All of that is what kicks off the big problem going forward. Normally you would say the bond market is going to be the problem, but I would tell you that it is actually going to be more stocks and eventually even real estate combined. Then ultimately, the bond market starts to go down, and down quickly once it starts.

When the dam finally breaks, it will break quickly. Literally, it is in a matter of months or certainly no more than a year once it really starts to go. 

You get very, very high inflation. We could have stock market holidays and things like that. 

The big difference between now and the depression is that the government is also in trouble at this point. We are really not going to have a huge failure until the government kind of comes to its wits' end. It will, but it comes as a last massive orgy of money printing to try to save everything - unlike anything you have seen yet. QE1, QE2, QE3 is nothing like what the Fed has to do when this thing starts to fall. They have to print, buy, and buy, and buy, and try to keep up the falling house. They will not be able to do it, but that will be the reaction. 

Then at some point, it is not going to work and the whole thing goes.

Click the play button below to listen to Chris' interview with Bob Wiedemer (40m:50s):

This is a companion discussion topic for the original entry at https://peakprosperity.com/robert-wiedemer-awaiting-the-aftershock/

…The Fed HAS to buy all Debt with the printing press! After all our Debt is backed by the full faith and credit of the United States (the people) All entitlements where no cash now exists as a savings HAS to be printed up and these entitlements are spent into the economy. 78 million Baby Boomers enter retirement age starting now. Yikes!, that's allot of printing.
I know it looks as though I am stubborn about this Inflation beast but I am not. I am just not going to submit, until I understand. even if I sound foolish, and I will sound foolish still, no question about that. Chris even intimated that if he was told that we would have printed this much money five years ago he would have said "you're nuts". I presume because he would have thought massive Inflation, and thus would be proven foolish. Of course you're not proven foolish Chris nor am I. Check this out:

http://www.youtube.com/watch?v=ygs-4GfqPcM

So, I learn from the Professor Man. Don't ever let your biases fool you into thinking you;re perfectly sane. 

More dollars chasing fewer and fewer goods. Now I see the Inflation and possible Hyperinflation! I love it when things come together, but, that's if the Fed is allowed to print, and we just don't let free markets correct themselves. DEBT is STILL a huge part of the balance sheet.

OK, I see the landscape better now. It's a race then to print and to Debt destruction. Who wins, well, that's a toughie because I have lived through Carter Inflation, and I seen 2008 sooooo, I'll be a watching.

Great Podcast.

Hey!, a quick thought: Are we really going to kill the dollar? What will Japan, Europe, and the UK do to this equation of Inflation and Hyperinflation when these countries fail? They will, before the U.S. I'm guessing. More questions still, and astute observations are still required but at least I am secure with this whole Deflation-Inflation beast (es-ses) thing-a-ma-bob. I got Gold and Silver. Gold in particular buys the same thing relative to the same thing today, as it did way back in the day. and likely way into the future. Cool.

Adam and gang, I love your work ethic, and everything you all provide. Turned on still to just, everything. Done for the weekend now, perhaps.

Merry Christmas

BOB

I lost my husband the begining of November and I just wanted to thank you for your site and pod casts etc. This one was especially helpful as I have a small child and planning for her future is my number one concern at the moment. This pod cast was especially helpful because with all the drama I have had in my life lately the 2-4 year time range discussed is actually comforting as it allows me more time to add to my current preparations.

Hi PaulaJane,I am so sorry for your loss. It must be incredibly difficult. I think that you will be okay though, because barely one month after losing your husband you are already looking ahead to plan, and find ways to look out for you and your daughter. You must be a very strong lady and I applaude you for being courageous enough to begin taking steps to prepare yourself for this next phase of your life.
I like to think that you will always find words of wisdom here on this site, and that the online PP community will, I am sure, provide encouragement as you go.
Good luck to you and your daughter.
Jan

 

It is a priviledge  to be able to listen in to two inteligent people discuss that which is alien to me.
It is especially alien coming off the back of a 12 hour night shift.
 
My impressions are these. That precious metals are a short on the dollar, which is fortunate for me because the concept is simple and easy to impliment with no counter party risk.
 
Well, that is not quite true. I feel a lot of unwanted attention from the citizens who will become desperadoes when things turn pear-shaped. With this uneasy feeling in mind I have decided to convert the silver into a bigger yacht. Then my counter party will be the rageing, indifferent ocean, which will get angrier as the thermal gradient that drives the winds becomes greater. (Until the ice is gone and the gradient moderates.)
 
My fiat money model is Donella Meadow's bath-tub. There is an optimum amount of fiat in the economy as there is an optimum amount of water in the bath. Due to the laws of entrophy the bath became cold and miserable. So the FED filled up the bath with more nice warm water. But if the water flows over the top of the bath, the party is over. (Money destruction and a lot of angry mothers) So fiat has to be drained from the economy. But if Ben pulls the plug to drain some water  (Debt defaults, taxation) and can't control the process the party is over and he sits naked and sad in an empty bath. (Deflation). So there Ben sits. Does he pour more hot money or does he pull the plug? Hurry up Ben. The water is getting cold again.
 
What do you do if you discover the note that you have in your hand is counterfeit? You go and spend it as fast as possible and transfer your bad luck onto someone else. The Chinese steel making venture is no longer profitable, but still the ships keep coming into port here in Australia to load up on iron ore. I guess that the Chinese are keen to spend their $US.
Spot the Patsy in this story.
 
Here is a picture of the late professor's book.

Yeah Arthur, but the Edmond Fitzgerald stopped floating just down river from where I used to live. There wasn't a day she didn't seem to run her route from Minnesota to the Rouge except after her fateful day. City is now a ghost town as the money machine ended with off shoring. Is this the same as the export model drying up, and no internal economy to pick up the slack?Can Ben figure out every single time when the bath tub needs hot water, and can he get there quick enough? How about Japan, UK, Europe? We'll certain know that I'm guessing soon enough. Will our Congress work together? That's a big if, and Ben can't help there or can he?
Bob

Hi Rob,Let us pretend that the Chairman of the FED could judge the amount of fiat that the economy needed to be circulating out in the wilds. And that there were no other complicating issues such a political favours, rabid ideologies, nationalistic chest thumping etc.
He would still be sitting in the bathtub with too much liquidity. Nothing about his situation would be different. Once he attempts to drain the excess out of the tub by confiscating dollars  and burning them (Taxation), or by allowing dollars to evaporate (Defaults and debt retirement), the economy siezes. This is what happened in 2008. The situation nearly got out of control when defaults removed liquidity down the proverbial plughole.
 Do you see Ben running naked down the street shouting "Eureka"? This is why there is no more talk of an exit strategy.
That is the best model I can come up with.
And now I must stop  pretending to be something that I am not. An economist.
Good luck with the repatriation of your local economy. Burning fuel to import cheap products has got hairs on it.
 

…everyone is debasing!, They are all doing as Ben is. It appears (and I have no idea about this) that Ben is letting some water out in order to put fresh hot water in. I can only guess that Debt destruction and new printing are a Push (cancelling each others out) but I really don't know about such things or how to measure this. The World is now in a serious CONTRACTION, and all the NUMBERS tell a baffle them with BS tale. We have more Inflation than stated, Europe is in greater need of Capital than is reported and they have NO COLLATERAL, Japan and the UK are beyond any previously known rational, and China is NOT the Miracle Child. I have to then conclude that things are beyond what can be controlled right now, and me thinks the Central Banks have their collective fingers crossed, and from time to time have to lift one wet index figure to the wind and see which way the wind is blowing. It is so amazing to me as Dr.Martenson mentioned in yesterdays Podcast yet again, "if you told me that this much printing would have happened then I would have said you were nuts", (I hope I quoted properly Chris). If Chris is nuts (he isn't but he's definitely baffled) then I feel like I'm in pretty good company when I think anything can happen.
What if the Congress of the United States actually screws things up so badly that they themselves by default changes the equation, and we get a massive default by the American people through the courts for instance, Bankruptcies? Could the Fed get control of this? So many ifs that I just will take a look see, not put all my eggs in one basket but will ABSOLUTELY prepare and become more Resilient (if that is possible) as this just makes the most sense to me right now. We are entering Spring on the other side of the world and what weather events are in store their? Mother Nature is seldom factored for but is a huge player in this crazy game.

I absolutely love this drama in my life. I just do.

Regards my Friend

Merry Christmas Arthur

BOB

This link is from an older article, which pre-dates my time on this site, so it may very well have previously been published here. But timing aside, this is still a very relevant article. As with all predictions, nailing timing for events to happen are educated guesses at best.
http://inflation.us/hyperinflationwarningsigns.html

As I try to wrap my head around some of these complex subjects, I come to but one simple conclusion that I can buy into: the only thing standing in the way of hyperinflation is confidence in the US dollar. As we have seen in the past couple of years, as the SHTF globally, there was a large scale flight into Treasuries, as they were seen as being the best horse in the glue factory, due to reserve currency status. Those purchases are based purely on the confidence factor, as US Treasuries are largely, if not totally un-secured. Therefore our turning point, the one where we move to a hyperinflation scenario, is the moment when that confidence falters, and money starts shifting out of Treasuries and into the only real, secured things left: commodities. The increase in sovereign purchases of gold and other commodities, as well as increased foreign investment (e.g. China, trying to lock up Canadian, Australian and African resources) tells me that this ball is indeed already rolling and heading down the pipeline. The fact that there is even talk of a gold backed Yuan, that some countries are already exchanging gold for oil, and China has created agreements with some countries to conduct trade using Yuan instead of dollars is incredibly serious stuff.

So it is a waiting game. We know there is a high probability of it happening, we just don't know when. I think what we need to do is firmly establish what our "trigger points" will be. What will have to happen to let us know hyperinflation is starting, it is for real, and to brace ourselves for impact? The problem in trying to figure this out is that so much of the information we are fed is manipulated, and therefore not to be trusted. E.g. consumer price index - we all know how heavily manipulated that is.

How then can we as individuals establish good and credible trigger points to let us know it is really and truly starting to come apart at the seams?

Jan

…come together and then paint a landscape that after I put my glasses on showed the deeper meaning of things as the background (the unseen) really sets in motion the meanings of things. It really has been a joyful period for me. Then I read this today from a Man I have come to not only enjoy but respect for his sensibility and prose. If I could put to paper as the Big Guys do this might have been something I would have liked to have written because it sure fits my awakening recently.
From Mark. Grant:

http://www.zerohedge.com/news/2012-12-02/mark-j-grant-its-me-baby-your-wake-call

I have a first edition copy of the "Grapes of Wrath", I think I will read it again.

OT: Jan, I just think you are one terrific, sweet, sensible, and compassionate Girl I have read here at PP or anywhere… safewrite comes to mind also. Girls, you have my deepest respect. I share many of your comments with my Lady and she is of the same character as you good Folks.

No comment is necessary, just let the compliment resonate and make you smile.

Merry Christmas

BOB

…have stopped using the dollar, and this is somehow a "TELL" that indicates the dollar reserve currency is a doomed currency (in so many words). I will only ask that you read this from Michael Pettis, and see that there may be another explanation.
http://www.mpettis.com/2012/11/17/is-there-an-asian-rmb-bloc/

Then you might want Jim Chanos take:

http://www.businessinsider.com/chanos-chinas-credit-situation-is-worse-than-greece-and-spain-and-the-micro-is-even-worse-2012-7

Our biases or wanting something to be the definitive answer causes us to miss what just might be the real answer.

Respectfully Given

BOB

…why? Plus this doesn't seem like a good idea if we are conviced that Gold will back some future currency. Lets take a look see, and make up our own minds.
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Re: I CALL BULLSHIT: What country can pay for oil in Gold Bullion

If you got Gold at $1600 an ounce and Oil at $100 a barrel,

1 ounce of gold buys 16 barrels.

If you need 1 Million barrels A DAY,

That means you need:

1,000,0000 divided by 16 barrels = 62, 500 ounces of GOLD

PER DAY

Now how long can anyone keep that up?

 Quoting: CaptainZero 8770715

Well. There's a couple problems to address first, then we'll go with it. First, you're pricing gold in US dollars, which is what these countries are trying to escape in the first place. Second, you're assuming these countries are dealing with prices similar to spot market prices. History tells us this isn't the case. Third, gold is closer to $1700 an ounce at this point and that's the paper spot price. Physical premiums bring the actual value to $1700+ per ounce at current spot.

So lets say it's 17 barrels per ounce, even though iran is probably desperate and would give up 20 barrels or more for an ounce at current prices.

I think it was india that announced the gold for oil purchase right? They are currently consuming about 1million barrels per day from iran like you said. Replace 16 with 17(really it should probably be 20) and you get 58,824 ounces of gold. There are 16 ounces in a pound and 2000 pounds in a ton. So 1.84 tons of gold per day if they completely replaced all currency purchases with gold transactions.

If we assume 20 barrels per ounce, that would be 1.56 tons.

As of December 2010 official indian gold holdings were reported at 558 tons. Obviously that total is a LOT higher today. I'll try to find a more accurate number.

558 tons of gold divided by 1.84 = 303 days

558 tons of gold divided by 1.56 = 358 days

Respectfully Given

BOB

 

 

I do not think for one moment that any one country would contemplate exchanging gold for oil on a regular and ongoing basis, for the very reasons that you point out Bob. However, that does not mean that some transactions are not being done, as in some trade between Iran and Turkey or Iran and India, which I understand is merely to get around sanctionsHere is a partial part of an article on Wikipedia:
"… The Chinese yuan or renminbi (RMB) cannot be used as a reserve currency as long as the Chinese government maintains capital controls on the conversion of its currency.[32] The currency would not be attractive to central banks for holding unless China develop a strong open bond market.[33] The Bank for International Settlements estimates that in 2010 around 0.9% of all currency market transactions were carried out in renminbi.[34] Chinese President Hu Jintao has said that it would be a long process before the yuan will be accepted as a global currency.[35] However China has taken modest steps in this direction with currency-swap agreements with a few western Pacific nations.[36]"
The article had also said that it took a long time for the US dollar to overtake the British Sterling as reserve currency. So while I do not see anything happening to threaten the dollar's reserve currency status any time soon, that is not to say that moving in that direction is not on the radar screen of certain nations.
This of course brings me to the next point, which is how all of this talk about trying to undermine the US dollar increases the potential for war. A loss of reserve currency status would mean game over for the US, so it goes without saying then, I think, that it will do anything and everything to maintain that status, including military action. There is speculation that incursions into Iraq and Libya were more related to those countries making attempts to use other currencies for oil transactions. So some muscle was flexed to dissuade others from thinking of doing the same thing. Food for thought.
War is not a subject that gets talked about much, however, I think it is a very real possibility. There are tremendous global power struggles all arising out of the need for increasingly scarce resources. Some nations are more desperate than others. Who or what might be the fuse in the proverbial keg?
And Bob, thanks for the nice compliment!
Jan

source:  http://www.scribd.com/doc/113621307/Kyle-Bass        page 9

"Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusion.  We believe that war is the inevitable consequence of the current global situation." 

Jan,The USD is already losing reserve status, it's not all or nothing.  See
https://peakprosperity.com/forum/80133/reserve-currency-status
Doug

Jan, since you mentioned the role of the US military and it's support of the US dollar, that's the last stage of the enforcement of the US empire mechanism:
http://www.youtube.com/watch?v=e0JCJ4pIFEw

It's a much uglier world than we would all like to imagine when you get close to the centers of power.  

 

[quote=westcoastjan]War is not a subject that gets talked about much, however, I think it is a very real possibility. There are tremendous global power struggles all arising out of the need for increasingly scarce resources. Some nations are more desperate than others. Who or what might be the fuse in the proverbial keg?
[/quote]
Actually, it gets talked about a lot, depending upon where you are reading and who you are talking to.  Going back many hundreds (if not thousands) of years, large scale economic crises (and this is the biggest ever) of this type that occur roughly every four generations are inevitably followed by a large scale conflict in about a decade's time.  The two obvious looming areas are the Middle East and the South China Sea. 
Russia is scaling up their military courtesy of burgeoning gas and oil revenues.  Recent news coverage has shown the resumption of Bear bomber patrols off the US west coast and nuke sub surfacings just off the US east coast.  Norway reports the same in the Arctic in an area of known sub-oceanic natural resources that Russia is openly and aggressively staking claim to.  Putin is no fool.  He is planning on doing to us what Reagan did to him in the 80s.  He is creating a challenge to get us involved in a military spending war at a time when we can least afford it, knowing what the outcome will ultimately be.  And don't believe any of the MOPE about how the US is going to be the top producer of oil and gas in a couple of years.  It isn't going to happen. 
Also, while Obama is foolishly promoting nuclear disarmament and Russia is getting rid of many of their old nuclear armaments, as we are, they are also building a whole new, updated generation of them, a fact that the MSM seems to conveniently ignore.  If Obama has us disarm to the extent that he is expressing, it's an open invitation to future aggression.
I've written about the China issue on CM before but my guess is that they will make their moves in the South China Sea after the US and Israel get embroiled in escalated affairs in the Middle East.  China knows it just has to bide its time.  They are letting us do their work for them (i.e. they are allowing time for the internal "rot" infesting this country to do its work of destruction).  You will see Russia, China, and the Islamic countries working in a coalition to unseat American hegemony.  It will be interesting, to say the least.
 

War!, is on the table, no question about that.
My point to all research is knowledge and preparations, and resilience. I do not want to be that person who gets caught up in believing anything so hard that I miss something.

I would have given Inflation a 90% absolute outcome to printing all the money we have since 2007, possibly more. I would have been wrong as we speak.

Kyle Bass is a BIG TIME favorite.

Jan, my threads were not a direct answer to your posting even though they seemed eerily direct. I have posted these same articles before, and that's the truth. My mindset this weekend has been to destroy each argument, pro and con, as I fight to take each sides position. That's it. I am still uncertain, and I'm glad about that. 

If we go off the Cliff and we actually set a course that is responsible then this changes Folks. I understand the odds on this are not 50-50 but who really knows. To many moving parts.

I know this, Gold is a hedge, insurance, is Money, and physical is what should be owned because to not own it is just plain irresponsible. Plus it cannot go to zero and it's purchasing power is consistent.

I also believe that the dollar stands a very serious chance of going up as the dollar will be viewed the safest currency/haven, and nothing can change that based on what is going on out there. No question about that.

The U.S. military are not buffoons by any stretch. We may have left Iraq but what did we leave behind that is the property of and controlled by the U.S. military? Rocket defense shield? Other toys? Who knows but we sure as hell didn't leave there with our pants down. Saudi Arabia is a commitment and we will dance. Interesting? You bet.

Bed time, maybe.

Respectfully Given

BOB

 

Because this is how I (we) learn. No worries Bob, I appreciate each and every comment whether in direct response to something I post or not. And I am also learning that there are some fine, engaged minds on this site which bodes well for shaping my thinking I believe one has the best chance of learning when they are open to all perspectives, weighing them against their own and deciding if that is something worth buying into. This is the school of life, and there are no better teachers than some of the people on this site, from Chris and his team right on down to the many enlightened posters. Thanks everyone!As to the thread, we do indeed live in interesting times, and those who are aware and preparing accordingly will be the least surprised as things unfold.
Cheers,
Jan

Absolutely Jan, and these times we live in are interesting.My goodness, sometimes I think from conversations around here you would think that the United States is the home of the Prince of Darkness himself. Whoever and whatever that is. I just don't buy it. I cannot think of any War that was not a resource War. Ideology is seldom the reason. OIL is the reason for this season, I am sure of that.
This Pandora's Box you opened (unintentionally) tonight is one that is perhaps avoided because there's some serious tonnage of the Nuke kind out there and, well, oops. It should be brought up but I'll betcha a dollar the testosterone level gets really elevated pretty quick.
China, China, China, why is everyone so worried about China. I love China. I do know this, they have one Air Craft Carrier and we have 12 (my information is maybe dated but it's a big gap I know that). We have two on the docks. What China does is fine, but again, do they really want an END scenario? If so then start lighting up the War Room switch boards now. See, just silly are my thoughts. If not silly then I'll see you Folks on the other side, and peace will be a beautiful thing.
It is nearly 70 years that no nuclear device has been deployed aggressively, and my guess 70 more years.
As reserve currency I do believe that other countries want it to succeed, why ruin a good thing. Just business. I'm tired now so I may have changed my mind on this in the morning.
Russia may very well want vengeance on the U.S. as they lost the cold war. However, looking at a World map now above my desk, I see they still have the same issues they have always had, Water. How to get into the open Sea! That's a big issue, China too. Now, if the Russians put some sleds on the bottom of them boats they could go anywhere they wanted. Maybe that's what they have been doing with their Oil and Natural Gas. It would be easier for China to attack Russia frankly and that is just the truth. To take on the United States is plane foolish.
I've heard stories of subs popping up here, there, and everywhere while the U.S. is in battle exercises, from Russian and China. Off our coasts even and shooting off dummy rockets! Ewwww scary. It happened in California not long ago. Well, I hear they came up undetected until you realize they were detected by coming up! How dumb is that? The best plan of attack is surprise, well they just surprised us, and thank you very much. Honestly, that is like saying Boo! Thus alarming us to tighten up, and the Boo is no more. Just, plain, STUPID, and so are those reporting this as the U.S. is incompetent. Maybe, just maybe, we are not this stupid, and we want you to think we are stupid. Honestly. We have military uniforms that can mimic the natural surroundings of what is behind us so that we look invisible to the naked eye as you peer straight ahead during the day light!
Hey, I have been thinking this for a while and figured why not share this now. If you had all the cash as the Elite have, then why not a Deflationary event? They could BUY EVERYTHING, and not tear everything down to do it, and do all the buying on the cheap too! This seems so much easier than HYPERINFLATION doesn't it? Jus' sayin'.
Anyways, this muse could go on all night, and I am now tired. Good night Folks
Respectfully Given
BOB