The stimulus is like crack to the U.S. economy but stopping it for just a year would cause an economic collapse like the one in 2008, Harry Dent, author of the new book “The Great Crash: Strategies Ahead for a World Turned Upside Down,” tells Newsmax TV.
Dent explained that the problems began with the 1970s recession when the country started running budget and trade deficits and private debt soon followed, dwarfing anything in debt ratios in history.
Watch the exclusive interview here.
“We’ve been using debt, trade deficits, budget deficits to amplify our economy like steroids, like crack,” he said. “But the biggest part of this, the greatest increase in private debt, the death bubble around real estate, happened from 2000 to 2008. We created $22 trillion in private debt, $5 trillion in extra government debt between 2000 and 2008; just eight years more than all the debt we created in history before that.
“Now that that debt bubble is falling apart and now that 92 million Baby Boomers are naturally moving from spending to saving as their kids leave the nest, something we predicted 20 years ago would start around 2008, you’ve got the government throwing trillions of dollars and bailouts and all types of programs, again, to try to stimulate the economy. The economy’s running on crack. If we stopped the stimulus for just one year, this economy would fall apart just as fast as it did in 2008.”
Dent, also author of “The Great Boom Ahead“ which accurately predicted massive economic growth of 1990s, said recent gains in the housing market are not what they seem when put into the perspective that the country just went through a drop in home prices and sales that was event “greater than the Great Depression.”
He said all the country has done is “bounce a little bit from those low levels.” He added the rebound is coming from speculators and foreign buyers not from “people buying real homes like young couples because mortgage applications are deader than a doornail.”
“Housing has developed some demand after years and years of no building and working off of inventories,” he said. “But we still look at you’ve got almost four million homes in the pipeline, foreclosures or seriously delinquent. That’s four years of foreclosure sales that are going to keep weighing this down and if we have another downturn, as we expect in the next year, home prices and home sales will plunge again.”
On other topics, Dent said:
- People should view a house as an expense. “If you can rent it cheaper than you can buy, rent. Especially for young people, wait until we see a more sustainable rebound in housing and that’s probably from 2015 forward.”
- Paying down high interest debt, like credit card debt, is a good idea but not paying down a four or five percent mortgage loan that’s tax deductible. “So I really don’t want to pay up that mortgage because it would take a lot of my cash but, boy, the payoff of $5,000 credit card balance with 22 percent interest, yeah, that’s a slam dunk.”
- About a decade from now, “we get sustainable growth again. Between now and then we get big bubbles, big crashes. We’re going to see that so we’re not telling people they can’t do anything for 10 years. Just sell into this bubble here which is going to peak by late 2012 or early 2013, including things like gold, let the next bubble crash and then re-invest again after the crash. That time period’s going to be more around late 2014, give or take. But we’ll have to see.”
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