The U.S. and world governments are doing too much to shelter themselves from an economic lull that is needed to prevent a bigger crash, according to Harry Dent.
The noted economist and Columbia native will be back in his hometown this week to talk about his new book “The Great Crash Ahead” and offer tips for staying financially sound in the coming years. The seminar, “Today’s economy explained,” is being offered for free by The McDaniel Corp., a Columbia-based financial planning firm.
The U.S. government has pumped trillions of stimulus dollars into the economy over the past four years. Some say the measures have worked, recently pushing the Dow above 13,000 for the first time since the Great Recession began. Others, like Dent, say the approach is only delaying a natural downturn.
“It’s like taking more drugs not to come down from the high,” Dent said. “I’ve never seen governments on a global scale fight a downturn so much. It’s a painful thing. People don’t want to go through it, but it’s the only way to come out the other side.”
Dent predicts the Dow will freefall to between 3,000 and 6,000 in the next few years as the bubble that he says currently is building – thanks to government stimulus – bursts.
“The stimulus will fail, the economy will break down, the free-market system is going to restructure it,” he said. “We didn’t have to play it this way.”
Dent is not against all government stimulus, but he says it should have been done smarter.
Instead of loaning banks money just to keep them from failing, the government should have required the banks to write down $3 in loans for every $1 they received. That would amount to taking on $1 trillion in public debt to ease $3 trillion in private debt.
“If you reduce the debt burden, (consumers) feel better about the economy,” he said.
Dent has been criticized because he previously predicted the Dow would climb to 30,000 or more in its last boom market. It did not reach half that number.
“We make bold forecasts,” he said. “Nobody is going to be able to nail this every time.”
Overall, he says, his team has called almost all the major trends in the market. They simply overestimated the last upturn, he said.
“We did get a bubble economy,” he said. “But the stock market didn’t bubble, it shifted to real estate.”
Dent says he has no doubt a crash is coming and it likely will happen next year. The only way to avoid it is to cut and restructure government spending, which he says neither Democrats nor Republicans will do until it is too late.
“It will get restructured in a crisis by the government,” he said. “When the barn’s burning, everyday people become heroes.”
So should folks just hide their money under their mattresses?
Dent says no.
There are still sectors of the economy that will grow even in a crisis, he said. Health care will remain viable because aging baby boomers are going to spend money on staying healthy, and emerging markets – such as India and Southeast Asia – show promise, he said.
“Plan your investments so you don’t get sideswiped every time the bubble bursts,” Dent said.