Tags: addison | wiggins | economy

'I.O.U.S.A.' Author Warns of Boomer Market Woes

Thursday, 16 Oct 2008 10:57 AM

By Dave Eberhart

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Just when you thought you’d heard the worst of the economic crisis, along comes Addison Wiggin, co-author and producer of the book and companion documentary film, “I.O.U.S.A.: One Nation. Under Stress. In Debt.,” to make sure you plumb the true depths of our current fiscal despair.

Wiggin, along with co-author Kate Incontrera, warns of baby boomer retirees poised to dump their stock shares to fund their golden years. The downside: share values plummet.

[Editor's Note: Get “I.O.U.S.A.: One Nation. Under Stress” — Go Here Now].

“AARP released a study last week that showed over 50 percent of the stocks held on the New York Stock Exchange were held by people 60 or older,” Wiggin informs. “Early in our working on ‘Financial Reckoning’ [an earlier book by Wiggin], we did a study of the demographics that led to looking at the Social Security program and Medicare and Medicaid.

At a press conference attended by Newsmax, Wiggin said, “At the same time, we were looking at investor mentality and what economists call the ‘fallacy of composition,’ which is if 50 percent of stocks are held by people who are expecting to sell those shares in order to fund their retirements, what’s going to happen to the shares as everybody starts dumping them?”

At the conference, Wiggin teamed up with David Walker, the outspoken former comptroller general of the U.S., who also happens to be the author of the forward to “I.O.U.S.A.”

Although the pair claims to be optimistic about America’s ability to pull itself out of the current economic mess, they typically spare none of the harsh details as they hammer the point home that now is the time for dramatic action, reform, and real leadership.

The Great Fearful Unknown

“I think one of the reasons that you saw such a big package with so much money involved and so much authority, was not as much for what the Treasury and the Fed knew — but more for what they didn’t know,” Walker imparts.

“Let’s talk about what could happen,” he continues. “We are overly reliant on foreign lenders. Today about a half of the debt held by the public is held by foreign lenders. Seventy percent-plus of our new debt is purchased by foreign lenders, and that’s good, because we don’t have the money.

“So the problem is not just how much debt we have; it’s the fact that we’re mortgaging America, which has significant economic, foreign policy, and potentially even national security implications.”

Just as the book and the movie walks the audience through the details of debts and deficits, Walker leads the audience through to one possible end-game of the country’s economic folly.

“I think the most likely impact is not that foreign lenders are going to quit buying our debt . . . they could decide that if we’re not going to get our financial house in order, they will reduce their willingness to buy our prospective debt at a time where our deficits are going up . . . and at a time where our savings rate is abysmally low.

“That means that since we sell our debt at auction, interest rates will go up, which will have an affect on the budget, that will have an affect on the cost of credit, that will have an affect on the economy . . . ”

Walker offers a small sampling of an important primer — what the average citizen needs to know about how the economy works — and how to best evaluate what the leadership in Washington is doing or not doing to keep the country from flying off the rails.

The reader of “I.O.U.S.A.” is treated to the same sort of careful explanations.

The book illuminates today’s financial crisis in a unique and easy-to-understand way by examining four serious “deficits” the nation faces: the budget deficit, the personal savings deficit, the trade deficit and, most importantly, the leadership deficit.

It also provides complete transcripts of interviews conducted with financial gurus such as Warren Buffett, Alan Greenspan, Steve Forbes, Robert Rubin, and Arthur Laffer.

“None of these luminaries agrees 100 percent with what the solutions are for the problems we face as a nation,” admits Wiggin. “But it’s obvious to everyone that we’ve lived beyond our means for too long. Most Americans are going to have to rethink what they expect from their government. And, by extension, how they plan for their own future.”

At the Washington press conference, Wiggin can’t mask his frustration at how inelegantly the bailout plan went down.

“It’s a little bit surprising to me the urgency with which the bailout was proposed and then debated on the Hill and then finally accepted, because this problem has been developing and been written about and known about for a number of years and we have entered into a realm of what I perceive to be a very dangerous political environment where urgency is overtaking prudency.”

Wiggin should know. He has been one of the deliverers of the clarion call.

Calling It First and Calling It Right

“You know,” Wiggin says, “we have been writing about this for almost 15 years. I have written two New York Times best sellers . . . which premise that following the tech bust in 2002, the policies followed by the federal government would likely mutate a stock market bubble into an a housing and consumption bubble — and that’s exactly what happened.”

But the Wiggin information machine is more than books and a documentary, which, by the way, was nominated for the 2008 Sundance Grand Jury Prize.

Wiggin is the editorial director and publisher of The Daily Reckoning, a Web site and electronic newsletter, and executive publisher of Agora Financial, a multimillion-dollar financial research firm and publishing group based in Baltimore, Md.

The Daily Reckoning has attracted more than 500,000 readers in the United States and Great Britain; has been translated into French, German and Spanish; and has been popularized by such mainstream publications as Money and Marketwatch.com.

Wiggin clearly suggests that the people at the helm just haven’t been listening to folks like him. Meanwhile, Walker goes a step further and charges that the Congress may just be the worst tool to use to climb out of the mess.

“The fact that they didn’t get ahead of the issue and allowed this proposal to be viewed as being a $700 billion bailout of Wall Street, which it was not, but the fact that that is how it was presented and allowed to be presented to the American people — do you have any wonder why the American people wouldn’t want to support a $700 billion bailout of Wall Street?” Walker asks rhetorically.

“But once the American people understood that the stakes might be bigger, and once there were additional protections put in place with regard to oversight, with regard to transparency, with regard to safeguards, with regard to alternative needs of providing assistance, other than just buying impaired assets, etc., then the package became more palatable and more understandable and public opinion changed.”

Walker says reform is sorely needed: “There is no question that we need policy reforms, operational reforms, and political reforms; and there’s no question that the executive branch needs to be reorganized and refocused, and so does the legislative branch.”

[Editor's Note: Get “I.O.U.S.A.: One Nation. Under Stress” — Go Here Now].

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