The Little Boys Who Can’t

Harry S. Dent | Wednesday, April 10, 2013 >>


Have you heard the story about the little Dutch boy who saved Holland?

He was walking past an old dike one day when he noticed a leak. Worried that the leak would only get worse, and eventually flood his town, he stuck his finger into the hole. But then he couldn’t move because, if he removed his finger, the leak would just start up again.

After some time, the town Burgomaster walked past and saw the boy standing with his finger in the dike. When he found out what the boy was doing, he praised him and then told him to stay there while he called a council meeting.

The council thought the boy a hero and decided that he’d solved the problem of the wall. Rather than fix it, the boy could just continue to use his finger to keep the North Sea at bay.

Now, to alter the story ever so slightly…

When a second leak sprang up, the boy reached out with his other arm and valiantly stuck another finger into the wall. There he stood, spread-eagled up against the wall, the sea pushing with all its might to get through.

Then a third leak began. Bigger this time. Off came the boy’s shoe and into the new hole his toe went.

Then a fourth leak further away… and a fifth… water breaking through the old wall faster and faster. But the boy was already over extended and couldn’t do anything about the other leaks. He was having enough trouble containing the ones at his fingertips and toes…

And then, just to add insult to injury, yet another leak broke through the wall, spraying water right in the kid’s face.

Did I say he was a Dutch boy? Maybe I would be more accurate calling him the ECB chairman… and that gush of water pouring onto his face… well, that’s Cyprus.

In fairness though, I could just as easily call him Ben Bernanke… or any other central banker in the world. They’re all trying to hold back the tide of debt. In doing so, nothing is being done to fix the leaking wall. In fact, it just keeps deteriorating. And in the end, they can’t win. That wall’s coming down sooner or later.

The problem is, in central banks’ and governments’ stubborn refusal to make the hard choices… to allow this winter economic season to run its painful course so we can grow again… they are hurting the average household.

They’re simply keeping the boom bubble that benefited financial institutions and the top 1% to 20% going. And during this so-called “recovery,” it’s those SAME players who are benefitting.

Surveys of households show that 78% don’t feel we ever recovered from the great recession. That’s because most households don’t have much of their assets in stocks (where most of the “recovery” has taken place). Their inflation-adjusted wages are still going down. And a quarter of all homes are still underwater. If anything, most people are still feeling the bite of this economic season.

Ah… but more cracks are appearing… more leaks springing up…

In their misguided, idiotic attempts to save the economic world, governments are now starting to go after the rich people. The U.S. is steadily increasing taxes on the top 1% to help balance the budget. Cyprus is taxing international depositors 75% of their accounts over €100,000.

Both are stealing from their own citizens as well. Cyprus is doing it blatantly by withholding people’s money. It’s in the banks, they can see it, they just can’t have it. The U.S. is being more subtle, keeping short-term interest rates at 0%, 10-year Treasury bond yields below 2% and T-bills at zero. Over the last four years, this has taken away almost 10% from American savers.

Unfortunately, none of it is enough to even make a Dent (Yes! I just used my name in vain).

Get ready for another downturn, despite massive stimulus. While most economists and analysts warn you not to fight the Fed, that “they have your backs,” they cannot continue to stimulate forever.

Think of it this way… if you keep pouring sand on a flat surface, it will build a nice mound. Keep pouring and at some point just one sand pebble will land the wrong way, in the wrong place, and set in motion an avalanche.

An avalanche in this debt and demographic crisis is inevitable and likely to occur between late 2014 and 2020 as demographic and other cycles we measure worsen.

Protect yourself by getting more defensive in your investments, especially by this summer, and through smart financial planning that will protect you against rising taxes in the years ahead.

Harry

P.S. With the euro zone wall practically a sieve, and the U.S., China and Japanese walls deteriorating fast, we don’t expect the Dow to continue its upward moment for much longer. Read our more detailed analysis of what we forecast for the Dow, here.

 

 

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Categories: Economy

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.