Uncle Sam faces grave 'Economic Crisis': Will it go the Russian way!

While going through the history of 'Business cycles', we stumble upon an interesting fact: An 'economic crisis' or 'recession' repeats itself every 7-8 years on an average. Consider the historical evidence: Ever since the 'Great depression of 1931', the world has undergone a crisis situation at regular intervals. The last two crisis are still ripe in our memory: The crisis of 2001 (known as 'Dot-com bubble'), and the 2008 crisis (known as 'Sub-prime mortgage crisis'). This theory points towards another impending crisis in 2016-17. 

With the stock markets world over in the midst of an unprecedented 'Bull run', it is virtually unthinkable that a crisis is coming. So I had to brush up my knowledge of history to pin-point from where this crisis would emanate: Would it be Greece, China, Britain or any other country. The financial markets have braved all the negative news: be it failure of Greece, China's slowdown, Brexit or continuing recession in Japan, but will they be able to absorb the biggest shock that is knocking at our doorstep. Let me tell you a breaking news: 'Uncle Sam aka USA is broke' and will lead the crisis of 2016. I have been consistently warning my readers that the markets are over-heated, but the markets have continued to defy all logic in the recent past. I am happy that now people are giving heed to these sane voices. Here are a few statements, about American markets, recently made by some famous market experts:

•  “A $68 trillion ‘Biblical’ collapse is poised to wipe out millions of Americans.” - Jim Rogers
•  “Investors are on the Titanic” and stocks are about to “endure a gut-wrenching drop that would rival the greatest crashes in stock market history.”  - Marc Faber
•  “U.S. stocks are now about 80% overvalued.” - Andrew Smithers
• “Sell Everything” because “in a crowded hall, the exit doors are small.” - Royal Bank of Scotland

These American seniors have been worried about their nation's ability to pay out social security. Let us understand the reasons for their grave concerns about the future of American economy:

1. US is staring at mind boggling debt of $19 trillion, and an unmanageable fiscal deficit of $200 trillion
2. Inflation and Falling Real Wages: Retail inflation is higher than the figures declared by the Federal Govt., leading to an erosion in the real wages earned by a majority of Americans
3. American's have little or no money set aside for emergencies. According to a survey almost half (47%) said their savings would cover their living expenses for 90 days or less
4. The Federal Reserve’s fund rate has been coming down for more than 30 years, any hike would cripple the budget of an average American
5. US companies are increasing relying on foreign sales for survival, with global recession looming large these companies will find it hard to remain profitable
6. With the west losing its supremacy in the global sales, the world is looking with suspicion at US$ as the 'Reserve currency'. The recent decision by IMF to declare 'Rem nimbi' as an additional Reserve currency will add to the woes of US$.

These conditions are pointing towards a grim reality: The crash of US$ and the US stock market. To avoid this catastrophe US Federal Govt. may impose a 'Financial Martial Law' to shore up its resources, which means bad news for American citizens. At the same time US is also facing two more challenges: The US presidential election (The campaign so far has been reduced to a non-serious business with personal vendetta to the fore and major issues in the back-ground), and the chances of a full fledged war with Russia over Syria - as Russia has decided to challenge any diktat from USA or the NATO. Financial Emergency was last invoked in USA by President Nixon in 1973.

Will USA go the USSR way? The answer is 'No', because USA has a Federal Structure where states enjoy sweeping powers, and the US President is 'All Powerful' in the sense that he can be ruthless with the enemy as well as its own people in times of 'Emergency'. USA has enjoyed the status of the 'Sole World Super power' ever since the end of the cold war. But if the simmering discontent among the common US citizens spreads to the streets it may pose a serious threat to the Presidential form of Govt. in its present form. Will USA come out ever stronger as it did after the 'Nixon shock' of 1973, or will its supremacy as Sole World Super power threatened, and Barak Obama going  down in history as the last strong US President? Only time will tell, but the world is definitely moving towards a tectonic shift in the 'Balance of Power'.

Based on the above, my prognosis is: USA will lead the world into a deep economic crisis sooner than later. Investors are advised to reduce their holdings in risk assets like equity and real estate, and focus on alternate investments. An increased proportion of Debt and Gold in the portfolio would be a better option. If US markets are expected to crash by 30-40% as per estimates of analysts, Indian equity markets would also bear the brunt, although to a lesser extent,