FIVE CRISIS SCENARIOS 35cash can be one of your best assets in a deflationary environment.
The natural state of the world today is deflationary be-
cause we’re in a depression. The government, however, can’t
tolerate deflation. They have to cause inflation. That’s why
the Fed’s money printing is going on.
The best way to understand this is to picture two tectonic
plates, like the San Andreas Fault. There’s the Pacific plate and
the North American plate. They’re pressing on each other.
One plate is inflation and the other is deflation. The opposite
forces of money printing and depression dynamics are the forces
pushing them together.
They’re pressing and pressing. Like a fault line, not much
happens at first. At some point, however, it’s going to break.
It could break either way. It could break into inflation,
which we talked about, but it could also break into deflation.
The assets that will perform very well in a deflationary
environment are things like cash and believe it or not, gold.
Over the long-term, I think inflation is more likely because
the government wants it. That said, deflation is the state of the
world today and you cannot rule it out.
■ Geopolitical Crisis
The fourth scenario I’d like to highlight is a geopolitical shock.
People yawn and say, “Gee, haven’t we had enough of those
lately?”
It could, however, be something like an assassination or a
more momentous event than what we’ve seen so far. Or, one of
today’s current geopolitical struggles could spin out of control.
When Russia invades Crimea, that’s something that could
trigger a crisis. When the Islamic State declares a caliphate,
that’s another. When Libya completely falls apart, and they
stop pumping oil, that’s another.
I frequently make the point that any snowflake can cause