The Next Meltdown

The man who predicted the real-estate crash says to buy gold.


 

By Stephen Spruiell

Bob Wiedemer is explaining to a roomful of hedge-fund investors that the end of America as we know it won’t be as bad as they think. Wiedemer is co-author of the new book Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown. Sound overblown? That’s what they said about his first book, America’s Bubble Economy, in which Wiedemer and his co-authors, his Ph.D. brother David and writer Cindy Spitzer, predicted that the U.S. residential real-estate market was overvalued and due for a crash. That was in 2006, months before the crash actually occurred. Now Wiedemer is warning people that another bubble is about to collapse: America itself.

More specifically, it is Wiedemer’s view that the U.S. dollar will be the next bubble to burst. The government’s fiscal position, he explains, is unsustainable. America owes six times what it collects in tax revenues each year, and that ratio is projected to explode with the retirement of the baby boomers. On top of that, nearly 40 percent of U.S. debt must be refinanced each year, leaving the government highly vulnerable to rising interest rates. The Fed’s printing presses have been working overtime throughout the crisis, buying Treasuries and other securities to keep the economy afloat. This is a recipe for hyperinflation, and the New York Hedge Fund Roundtable has invited Wiedemer to this small conference room overlooking Park Avenue to tell investors how they can protect themselves from the fallout. His advice in one word: “Gold.”


Of late, it has become fashionable for the cool kids in the American media to mock conservative talkers for endorsing gold. For one thing, gold offers up a bountiful supply of admittedly hilarious punchlines involving pirates, Bond villains, and video games. (As Stephen Colbert quipped, “Did you know that if you collect 100 gold coins, you get an extra life?”) For another, some people really are “buggy” about gold. (That is, they hold some questionable beliefs about gold’s superiority over other forms of money.)

Wiedemer acknowledges that a few years ago, mentioning gold was the quickest way to lose credibility in a room full of investors, and for good reason: It doesn’t generate income, and it is not the invulnerable store of value its most fervent backers claim. But Wiedemer maintains that it is a good investment right now because its price tends to go up in response to fear, and in a hyperinflationary environment, there will be plenty of that to go around.

Wiedemer doesn’t fit into the thesis, so popular on MSNBC these days, that conservative talkers such as Glenn Beck dreamed up the gold racket as a profitable sideline to their main business of selling fear to people who “cling to guns and religion” (in Obama’s infamous formulation). He is a donor to Democratic politicians and causes, and his book contains asides on global warming and gun control that will leave liberals nodding. But he tells investors to check politics at the door and focus on the fundamentals of America’s fiscal situation. Fear will be a consequence of the popping of the dollar bubble, he says. But it won’t be the nightmarish apocalypse that some predict.

“The post-dollar bubble world is quite real and that is what makes it so bad,” he and his co-authors write in Aftershock. “It is real and we will have to deal with it. It’s a lot like going bankrupt — really terrible, but hardly the end of the world.” To the hedge-funders, he compares it to Pearl Harbor (and the war that followed): a terrible shock that inflicts a lot of damage, but one that forces the U.S. finally to confront a growing menace to its way of life and leaves it stronger. And it won’t be as bad as the Great Depression: America will fall farther, but only because it rose so high during the bubble years.

Wiedemer could be wrong, and some muttering in the elevator after the talk suggests that many people aren’t ready to believe him. But he is not alone. He notes that famed investors like John Paulson and David Einhorn have made gold “respectable” again — meaning that lots of smart money is on his being right. It’s a depressing thought. But when one considers the total disconnect from reality we are witnessing in Washington — new and costly health-care entitlements, endless rounds of “stimulus,” and trillion-dollar deficits projected for ten years or more — it is hard to come to any other conclusion. We have met the bubble, and it is us.

— Stephen Spruiell is an NRO staff reporter.