Jim Jubak

Jubak's Journal5/6/2008 12:01 AM ET

Financial doom and other fairy tales

Go ahead and read those apocalyptic books on the economy if you like a good scare. But be sure you recognize fiction when you see it.

By Jim Jubak

If fairy tales express our deepest fears, then investors must be on the verge of a psychotic breakdown.

The current crop of financial gloom-and-doom books carry titles such as "America's Financial Apocalypse," "Financial Armageddon" and the comparatively prosaic "The Coming Economic Collapse."

Any way you go, it means the end of the world (the end of the financial world, anyway). And that's scary. Really, really scary.

But we need to remember that while fairy tales may reflect real fears, they aren't reliable guides to how the world works. That's true whether the main character is named Snow White or Ben Bernanke.

Sigmund Freud, Carl Jung and Bruno Bettelheim all theorized that we read fairy tales about evil stepmothers, parental abandonment in dark woods and child-eating witches to help us express and then cope with our darkest fears.

The psychological value of these tales, in this theory, lies in the formulaic, repeated return to archetypical fears in what the reader knows -- even a reader as young as my 6-year-old daughter -- is a fiction. It also helps that, unlike real-life horrors, these tales usually have happy endings.

This current crop of financial-disaster books should be read the same way -- as financial fairy tales that represent our darkest financial fears and then allow us to cope with those fears by offering up happy endings in the form of investment strategies that can fend off disaster.

So what are investors' deepest fears right now?

A collapse of the U.S. dollar. A steady decline in the dollar of the sort I've been writing about seemingly forever is one thing. Investors, and others paid in dollars, aren't thrilled at the prospect, but they know they can cope by buying gold or overseas equities, for example.

A collapse is something else entirely. In "The Collapse of the Dollar," James Turk and John Rubino compare the catastrophe about to overtake the dollar to the fall of Rome, the hyperinflation that ushered in Hitler's Germany and the confiscation of bank deposits in 1990s Argentina.

A collapse in the dollar would let loose war, one of the Four Horsemen of the Apocalypse, according to Michael Panzner's "Financial Armageddon." In the absence of the global order enforced by the United States and represented by the dollar, countries would wage pitched battles for natural resources.

A new Great Depression. In the next decades, 73 million baby boomers will retire into poverty because they haven't saved much of anything and have run up a mountain of debt, and because financial market bubbles will have wiped out whatever they did save, argues Stathis in "America's Financial Apocalypse" (the author uses just one name).

In "The Next Great Bubble Boom," author Harry Dent Jr. forecasts a third great boom that will take the Dow Jones Industrial Average ($INDU) as high as 40,000 in 2010 before a housing and commodity crash ushers in a 12-year bear market so deep it produces deflation in the prices of everything through 2023. That period doesn't sound very appealing: The period after the boom will resemble, according to Dent, the years from A.D. 400 to 900, known in Western history as the Dark Ages.

The end of the oil economy. "Americans will experience a permanent energy shortfall far worse than the one in the 1970s," Stephen Leeb and Glen Strathy maintain in "The Coming Economic Collapse."

As the world runs out of oil, according to "America's Financial Apocalypse," the U.S. will enter a massive economic meltdown resulting in the next Great Depression.

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The biggest threat to our standard of living
Today's state of the U.S. economy may not seem apocalyptic, but a slow and steady economic beating could prove disastrous, Jim Jubak says.

The collapse of the debt pyramid created by Wall Street, fostered by the Federal Reserve and encouraged by the government in Washington. The problem, almost all these books agree, lies in the creation of money out of thin air. This money is backed not by gold but by a promise to pay, which we know the government is powerless to keep.

The books differ in how they define the problem. Turk and Rubino point to the end of the gold standard, while Panzner focuses on the creation of trillions of dollars in derivatives based on things such as mortgages and credit card debt. But they all agree that this structure isn't sustainable.

Many of the arguments for apocalypse in these books make are more extreme versions of the worries that I voice regularly in these columns. The U.S. is addicted to debt. The dollar is in a long-term decline. Parts of the financial markets do resemble pyramid schemes. The world is running out of oil.

Continued: 3 reasons for optimism

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