How Conspiracy Theorists Are Steering Us Toward the Fiscal Cliff

The world isn't about to end. You wouldn't know that if you listened to conservative talk radio.

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Reuters

Consumers are feeling optimistic; sales are up; employment hasn't much improved but neither is it getting worse; Washington is as dysfunctional as ever; and housing is showing significant life. Not the best of times, by any means, but not the worst. Yet, for some, that very calm says a storm is brewing, one of epic and perhaps even biblical proportions. Their opinion may not be a dominant chord, but it is prominent. And it may explain in part why our public debate about fiscal cliffs, taxes and the economic future can verge so quickly into dark, deep and destructive passions.

If you've turned on talk radio to pass the time driving from store to store for Christmas shopping, you may have heard an ominous voice jarring you from otherwise anodyne thoughts about the state of economic affairs. "Something bigger and more devastating than the credit crisis of 2008 is about to come our way. ... Fail to heed this final warning at your own risk." This isn't a public-service message, though it comes with that patina. It is an ad from CritcalWarning6, which has also festooned financial websites with its banners, urging you to click and find out just what lies ahead. So I did.

We are, says Michael Lombardi, the man behind the campaign, headed for a collapse that will make what happened in 2008-09 look like a pallid warmup, plunging the U.S. and the world into a new Great Depression whose long-term effects could be much worse. The U.S. government is bankrupt, says Lombardi, and the Federal Reserve's policy of "artificially low interest rates" has reached the end of its utility. There are no arrows in the proverbial government quiver, and in conjunction with an imploding euro zone, massive underemployment and far more debt than can be paid off, we are on the precipice, a cliff much more dire than the upcoming fiscal one. Stocks will plunge well below the lows reached in March 2009, and unemployment will make Spain today appear to be a safe haven.

It's easy to discount these currents as a paranoid fringe, but the lure of bullion and the warnings of financial Armageddon aren't fringe enough to be harmless. The melodrama of CriticalWarning6 actually shields the degree to which such views are nearly mainstream in the financial community, which has more than a fair share of influential investors who believe that various degrees of implosion are likelier than not. Famed investor John Paulson has invested and lost billions in gold this year with a similar, though surely better reasoned, philosophy. Marc Faber, who pens the Doom & Gloom report from his haven in Hong Kong, is of a similar mind. And they are by no means alone.

Such views also undergird the Tea Party fervor that debt must be dealt with NOW! The fiscal cliff is a sideshow, and any delay in dealing with the debt will mean one step closer to the financial collapse that we have been holding back as effectively as that little Dutch boy with his finger in the dyke. Sooner, or later...

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Zachary Karabell is Head of Global Strategy at Envestnet, a financial services firm, and author of The Leading Indicators: A Short History of the Numbers that Rule Our World. More

At River Twice Research, Karabell analyzes economic and political trends. He is also a senior advisor for Business for Social Responsibility. Previously, he was executive vice president, head of marketing and chief economist at Fred Alger Management, a New York-based investment firm, and president of Fred Alger and Company, as well as portfolio manager of the China-U.S. Growth Fund, which won a five-star designation from Morningstar. He was also executive vice president of Alger's Spectra Funds, which launched the $30 million Spectra Green Fund based on the idea that profit and sustainability are linked. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (2009), The Last Campaign: How Harry Truman Won the 1948 Election, which won the Chicago Tribune Heartland Award, and Peace Be Upon You: The Story of Muslim, Christian, and Jewish Coexistence (2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Karabell a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC and CNN, and has written for The Wall Street Journal, Newsweek, Time, The Washington Post, The New Republic, The Los Angeles Times, The New York Times, and Foreign Affairs.

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