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Letter Re: Is Katrina a Harbinger of an Economic 9/11?


Jim:
Not looking good these days. It is chaos down south. Those poor people, may God be with them in their time of need. What is your opinion on the current state of
the union? Gas prices, oil supplies in doubt. Do you think this could be the harbinger of an economic 9/11? I hate to admit it, but I do.

JWR’s Reply: Perhaps you might be right. There is the outside chance that this could be “it“: You know, The Big One. WTSHTF [1]. Total wipeout. The Day. TEOTWAWKI [1]. The Crunch. But something that drastic would surely take several more dominoes falling first. (Read my August 5/6/7 posts for details on my conception of a full scale TEOTWAWKI [2] sequence of events.)

Something big such as a major earthquake or a major terrorist incident could tip several dominoes all at once. The next likely domino after something like a fuel crisis would be a major jump in interest rates. I think that because of Katrina the Federal Reserve may stop its current cycle of raising interest rates, and could in fact start to nudge them downward. That could keep the housing bubble inflating even longer. (So when it does pop, it will be worse.) Also, consider the home construction and home supply sector (the latter including companies like Home Depot and Lowe’s) which had been faltering, may actually benefit from Katrina.

The big imponderable is the drag on the economy caused by the present upward spiral of fuel prices. At the minimum, I think that this could throw us back into a recession. Worst case is that it could cause a depression, exacerbated by the concomitant pop in the housing bubble. (Read: A very painful and a long term economic whammy–perhaps a decade or more.)

Buckle you seat belt. We are in for a roller coaster ride. IMHO the Hurricane Katrina disaster means that the likelihood of a hyperinflationary depression (a la my novel Patriots [3]) has increased. (That would be Uncle Sugar’s expedient solution to a dollar crisis. They could just inflate their way out of it and conveniently wipe out the national debt in the process. (Along with everyone’s life savings–virtually anything invested in anything denominated in U.S. dollars. That explains why I emphasize investing in tangibles.) But regardless, try to get out of debt, because if things tip into a deflationary depression, it will be even more severe than the 1930s.Being a debtor in the midst of a deflation is a Very Bad Thing (VBT [1]).

Most importantly, pray for God’s guidance, providence, and protection. That is our only real hope. Trust in God to put you in the right place at the right time, with the right friends. Blessed assurance is the best insurance of all.