Economic Lessons From "The Titanic"

Over the holidays my wife and I watched a movie we haven't seen in ages: Titanic. It's an epic movie that's more than a love story. Woven within its fabric is a powerful message of triumph over fear. Of living life to the fullest and not compromising on your values.

Many financial writers have compared the collapsing US economy to playing musical chairs on the deck of the Titanic. In the movie itself, the leader of the band said: "nice and cheery so there is no panic". Sounds like much of financial television to me. Over the past several years I have noticed a definite bias toward being "optimistic at all costs" about warning signs in the economy. Those who have challenged the official viewpoint have been ridiculed or shunned.

Many people think America is just like the Titanic. That it's too big to sink. And like the captain on the Titanic, it's full speed ahead regardless of potential danger. We're in the danger zone now. We've hit several several small icebergs and we're still moving forward. That's the good news. The question is, will we sink or swim. For that matter, will the global economy sink or swim. Remember the titanic had lifeboats for less than half her passengers. The ship was already filling with water before most people realized they needed a lifeboat. Then it was a do or die situation. There was one wealthy passenger who tried to buy safe passage on one of the few remaining lifeboats. His money was refused. There came a point in the crisis when money was useless. It wouldn't buy you anything. The only thing that mattered were real tangible items called lifeboats.

In the unfolding global financial crisis, what are the lifeboats that will eventually be in great demand and in short supply. Might these be tangible items of some kind similar to the lifeboats on the Titanic? What kind of tangible items might, at some point, not be available at any price? Could it be gold or silver? Right now there is a growing premium that needs to be paid on physical gold over paper gold. In other words, you can buy someone's promise to give you physical gold at some point in the future. But if you want to really own your lifeboat and take possession of it, it will cost you a substantial premium. And that premium is growing. Same is true for silver. In the last year, we have nearly doubled the federal debt with loans, bailouts and guarantees. Pretty soon all those additional dollars are going to start chasing the few lifeboats that are available and the prices are going to skyrocket. And the higher prices go, the less inclined people will be to part with their real, tangible lifeboats called gold and silver. And just like on the Titanic, safe passage will not be available at any price.