Is the U.S. on the Brink of an Unprecedented Financial Crisis? By
Patrick A. Heller, Market Update
July 01, 2008
the past week, the economic news has been horrible.
" The Dow Jones Industrial Average first broke down
through the 12,000 level that had been vigorously supported
by indirect U.S. government manipulation for months. Then
it quickly fell below 11,722, its year 2000 peak level, the
next major psychological resistance point. Now it is significantly
below that level.
" Major U.S. banks and brokerage firms have been turning
the knives on each other, calling for their clientele to avoid
investments of the other firms out of fear of major imminent
revelations of huge losses.
" The Royal Bank of Scotland, Barclay Capital, and Fortis
Bank have been predicting an imminent crash in the U.S. stock
markets. Actually, RBS said it may take until September and
may only see stock prices fall 25 percent. Over the weekend,
Guido Lippens, the chairman of Fortis Bank, predicted a major
financial collapse in the U.S. within a few weeks, including
bankruptcies of 6,000 regional banks and many major companies
(specifically naming Citigroup and General Motors).
When the Federal Reserve Open Market Committee met last Tuesday
and Wednesday, it basically did nothing. Several analysts
are taking this lack of action as a sign that the Federal
Reserve has exhausted its clout to manipulate markets to the
degree that it has done over most of the past year. To the
extent this may be true, that could be a major sign that the
U.S. may be on the brink of a huge financial crisis.
Even if the Federal Reserve still has a lot of financial
and political options available, as I think they do, the Fed's
reputation has suffered major damage. As one example, the
business media are now much less likely to pass along the
Fed's pronouncements without critical examination, and may
even explain that such proclamations are not considered credible
The economic environment really scares me right now. Maybe
there won't be a major crisis in the next few weeks or months.
But I just don't see that the problems will be cured or go
I recommend owning a substantial position in physical gold
or silver bullion-priced items in your immediate possession.
I used to suggest that 10 percent of one's net worth be held
in precious metals as insurance against financial calamities
affecting the value of currencies and paper assets like stocks
and bonds. Now, I think 20 percent and maybe even more would
be a prudent allocation.