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Aftershock

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IN THIS SUMMARY …

IN THIS SUMMARY
Economists and business leaders alike are still trying to understand the forces that led to the United States’ current economic woes. Some believe it is a down financial cycle or a recession, but in Aftershock, David Wiedemer, Robert Wiedemer, and Cindy Spitzer detail why they believe that neither explanation is correct. They describe what they have termed a Bubblequake–a popping of the real estate bubble, the private debt bubble, the stock market bubble, and the discretionary spending bubble. More alarming is that the economy is not going back to the way it was before because there are still more economic bubbles waiting to burst.

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Published in: Business, Economy & Finance

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  • 1.  
  • 2. AFTERSHOCK Protect Yourself and Profit in the Next Global Financial Meltdown AUTHORS: David Wiedemer, Robert A. Wiedemer, and Cindy Spitzer PUBLISHER: John Wiley & Sons, Inc. DATE OF PUBLICATION: 2010 273 pages
  • 3. FEATURES OF THE BOOK In Aftershock , David Wiedemer, Robert Wiedemer, and Cindy Spitzer provide a comprehensive explanation of what happened to the economy and, more importantly, to what is still happening and still to come.
  • 4. THE BIG IDEA
    • In Aftershock, the authors coin the term Bubblequake to describe the popping of four financial bubbles that led to the collapse of the U.S. economy in 2008. These bubbles were the:
    • Real estate bubble
    • Stock market bubble
    • Private debt bubble
    • Discretionary spending bubble
  • 5. INTRODUCTION Economists and business leaders alike are still trying to understand the forces that led to the United States’ current economic woes. Some believe it is a down financial cycle or a recession, but in Aftershock , David Wiedemer, Robert Wiedemer, and Cindy Spitzer detail why they believe that neither explanation is correct.
  • 6. PART ONE: FIRST THE BUBBLEQUAKE, NEXT THE AFTERSHOCK Contrary to popular belief, current economic issues cannot be explained by attributing them to a down financial cycle. Rather, the U.S. is actually experiencing a series of popping financial bubbles. A bubble is “an asset value that temporarily booms and eventually bursts based on changing investor psychology, rather than underlying, fundamental economic drivers that are sustainable over time.”
  • 7. PART ONE: FIRST THE BUBBLEQUAKE, NEXT THE AFTERSHOCK The asset value or bubble that popped first was the housing price bubble, and unlike a down cycle that is naturally followed by an up cycle, a bubble pop is not followed by an up cycle. The bubble simply pops, and any profit and momentum stops. Even if the economic decline slows or is stopped, and even if there is a small uptick, the recession is not over for the long term. According to the authors, saying the recession is over is “more like saying ‘Mission Accomplished’ before the real Iraq War even began.”
  • 8. PART TWO: AFTERSHOCK DANGERS AND PROFITS
    • Knowing how to protect financial assets during the bubblequake and aftershock is very important for investors. The authors provide two simple rules that will help protect finances, but that will not be easy for investors to follow:
    • Stay away from stocks and real estate until after the dollar bubble pops.
    • Stay away from long-term bonds and all fixed-rate investments (including whole life insurance).
  • 9. PART THREE: A NEW VIEW OF THE ECONOMY A big-picture view of the overall world economy is the key to a successful analysis of it. A larger view helps analysts see the fundamental trends driving the economy, and with one improved view, one fact that comes into focus is that the economy is not shifting, it is evolving. By analyzing the forces driving this evolution, it is easier to understand both shorter-term (two to five years) and longer-term (five to fifteen years) movements in the economy.
  • 10. PART THREE: A NEW VIEW OF THE ECONOMY One of the trends that emerges when viewing the economy from 30,000 feet is the short-term pain that will be caused by the bubblequake and aftershock. In the bubblequake of late 2008, the stock market fell dramatically and major banking institutions collapsed. In all, the four big bubbles of real estate, stock, private debt, and discretionary spending popped. In the aftershock, these bubbles will fall even further, and the dollar and U.S. government debt bubbles will also pop.
  • 11. PART THREE: A NEW VIEW OF THE ECONOMY In the post-bubble world, the U.S. government will not be able to borrow more money and will be forced to live within their means. They will not be able to create any stimulus packages or tax cuts, and many things that are taken for granted, such as pensions, will be curtailed. Drastic cuts to such fundamental programs and services such as Social Security, Medicare, and the military will be inevitable, as will higher taxes.
  • 12. PART THREE: A NEW VIEW OF THE ECONOMY As a result, the economy will be chaotic for a while, but with the dollar at such a low in this post-bubble world, foreign investors will come back, at lower levels, but some will be drawn in by the extremely low prices. The other good news is that the economy will ultimately be transformed by increasing real productivity. This increase will be focused in the largest sector of the economy, the service sector, primarily in healthcare, education, and government services.
  • 13. Business Book Summaries is a product of EBSCO Publishing. The website is updated weekly with 4 to 5 new summaries chosen from among the top business books printed in the United States. For more information or to sign up for the weekly newsletter, please visit http://www.bizsum.com. ABOUT BIZSUM.COM