No one, obviously, knows for sure how it will play out. All you can do is pay attention to a range of opinions, and decide what you tentatively believe and how you plan to protect your life, your honor, and your sacred fortune if the expected scenario goes down.
In that spirit, I offer the views of Christopher Wood, publisher of the newsletter Greed & Fear (which I am not familiar with) and apparently a respected Asia-Pacific financial strategist. (Tip o' the hat: Credit Writedowns.) I am not endorsing his ideas, and even if I were, it would make no difference because I lack qualifications in international finance. But I believe it is important at least to listen to people like him.
In a CNBC interview, he says:
He does not appear to be saying the dollar will become virtually worthless, only that it will no longer be the world's "reserve" currency, the international standard of value, as it has been at least since World War II. Not everyone agrees.
My view is that there is an inevitable endgame as a result of all this massive spending of taxpayer money in the West and Japan to bail out bankrupt banking systems, so in my view unfortunately the end game will be systemic government debt crisis in the western world.
It will probably happen in Europe and will climax in the U.S., and I am expecting on a five year view the collapse of the U.S. dollar paper standard.
Wood thinks the U.S. will be the last man standing … until it, too, can no longer violate the financial laws of gravity.
The key reason why that’s the endgame is that this credit crisis we saw in the west in 2008 and 2009 has simply been deferred, because 95 percent of the so-called government policy solutions to deal with this crisis have simply been to extend government guarantees.
So the problem’s been transferred from the private sector to the public sector. It’s just a matter of time before investors revolt against these sovereign guarantees … . The crisis is going to happen first in Europe. It’s going to climax in the U.S.
It's pretty clear that, so far, all the government bailouts and alleged fixes have not restored the economy, except for banks, who have been happy to take the public coin and use it to reward themselves, not start lending it to get the wheels turning again. Maybe a lending time out is a good thing — after all, madcap borrowing for consumption helped get us into this pit — but many businesses have a legitimate need to borrow for capital spending, and citizens for mortgages.
For investors, Wood advises overweighting Asia and underweighting the U.S. and Europe. But it's probably best not to put too much stock (pun intended) in that suggestion. As the managing director and chief strategist for an Asia-Pacific financial services company, he — like every other investment professional with a strategy — stands to benefit if people heed him. As the expression in the brokerage business goes, he's "talking his book."