Is the U.S. on the Brink of an Unprecedented Financial Crisis? By
Patrick A. Heller, Market Update
July 01, 2008
In
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 any longer.
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 away.
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.