I am not going to sugar coat this. I am scared out of my mind about what is going to happen to this country over the next decade. We are now in the process of making an incredibly painful transition from an economy built on credit to one built on cash. This will be a long drawn out process where you will see failure after failure in our banking system. If Citi can have issues so too can Bank of America and Wells Fargo. We are nowhere close to this being fixed and done. In the past couple of months, I have heard several of my friends optimistically and hopefully say that it will get better in late 2009. This is wishful thinking at best.

Imagine if you were the head of a foreign government that bought our bonds.  Are you going to put your money into a country that has a trillion dollar deficit? Would you really buys bonds from a country where every one of their financial institutions is in trouble or has failed? Some think that America’s work ethic and resourcefulness will carry us out of this recession because it has in the past. I believe that but the hole we have dug for ourselves is deep and will require time to refill.

When I started in the money management business in 1985, I was always optimistic. You couldn’t find a more bullish person in America. It lasted for 20 years. In 2005, I told Christine that I was worried. I was worried about a collapse in home prices that what would put incredible pressure on our financial institutions and our citizens. We were clearly over built and over borrowed. One of the drivers for this was the Baby Boomers. The Baby Boomers are the largest demographic group to ever move through any society in the history of the world. They bought, they bought and then they bought some more. Then, they started turning 65 and they wanted to sell. But to who? Who was going to provide the demand? Which group had the numbers…and the money. I have a home on Cape Cod that is our summer place. We have been there for 15 years. I’d love to sell this home and lower my living expenses. The chances of selling my Cape house? Zero. The other side of the economic market was just as grim. For a long while, we were lending money to a laborer making $42,000 a year in order that he/she might buy a $750,000 home. This “new” math won’t work.

Peter Schiff, the President of Euro Pacific Capital has been saying many of the same things that I have been saying. Two years ago, Schiff was eviscerated by Fox News for making projections that at the time seemed outlandish. Today, Schiff is lauded for his insight. If you watch this video be prepared to be depressed. This is Schiff’s latest thoughts and they are not reassuring. Just remember: forewarned is forearmed.

Possibly Related Posts:

• Know What You Don’t Know
• Week 25 – 5 x 5
• The Cat is on the Roof
• You Betcha; It’s RTT
• Random Thoughts Tuesday, Yes It Is.