Are you looking for a very pronounced bear market beyond what we have already seen? Yes, eventually I expect the market to break the October 1987 low.
Do you expect a very deep recession as well? Right now [April 1988], I'm still looking mainly for a financial collapse. However, the politicians may foul it up
and turn it into an economic collapse.
Can we get a financial collapse without actually having a very serious recession? Sure. It has happened lots of times. That is why I used 1937 as an example before. I don't expect the
economy to collapse because as the dollar keeps getting weaker—which is what I expect—many parts of the American
economy will do well—steel, agriculture, textiles, mining.
So even if the stock market falls below the October low, you can still see the economy doing well? Absolutely. Unless the politicians foul it up.
By doing what? Raising taxes, tariffs, protectionism. There are lots of things the politicians can do to foul it up, and I'm sure
they will—they always have. I know we will have a financial crisis. And, if the politicians get it wrong, we may get an
economic collapse as well.
What is going to trigger the financial collapse? The trade figures will start getting worse again, and this will eventually precipitate another dollar crisis.
What do you see as the main cause of the trade deficit? The budget deficit, by and large, causes the trade deficit. You are not going to get rid of the trade deficit until
you get rid of the budget deficit.
Given the magnitude of the deficit problem, is there anything that can be done at this point? The basic problem in the world today is that America is consuming more than it is saving. You need to do
everything you can to encourage saving and investment: Eliminate taxation of savings, the capital gains tax, and dual
taxation of dividends; bring back the more attractive incentives for IRAs, Keoghs, and 401Ks. At the same time, you
need to do everything you can to discourage consumption. Change our tax structure to utilize a value added tax,
which taxes consumption rather than saving and investing. Cut government spending dramatically—and there are lots
of ways of doing it without hurting the economy too badly. We would have problems, but the problems would not be
nearly as bad as when they are forced on us. If we don't bite the bullet, then we are going to have a 1930s-type
collapse.
