Natural catastrophes are often the lesser of the evils. It’s the man-made disasters that can cause the most lasting harm.

Right now, for example, my son is living in Japan and he was the first American to send back an eyewitness account of the earthquake to the U.S. press. But no matter how horrible that tragedy may be, he and I know that the people of Japan will overcome it. They will rebuild. They will put their lives back together. And in the process, they will become even stronger.

Unfortunately, the same cannot be said about the man-made disasters — in part, because they are not immediately visible to the general public or even to some of the smartest investors. 

Corrupt government policies are covered up. Debts, deficits and excess risk-taking in nearly all realms of life are pooh-poohed or even cheered on. The magnitude of the crisis is ignored until it torpedoes investment portfolios or explodes onto the streets.

Just this past Saturday, for example, more than 250,000 people mobbed Trafalgar Square in London to protest government cutbacks. They then descended into a ferocious melee as smaller groups of “violent yobs” destroyed shops, and attacked banks.

In Syria — a tightly controlled police state where open protests were thought to be next to impossible — the violence is suddenly worse than in any Arab country outside of Libya.

Jordan, another key country thought to be among the most stable, has now also erupted into mass demonstrations. We see similar trends in Algeria, Bahrain and even Saudi Arabia.

My view: As an investor and as a citizen, it’s not enough to simply sit back and watch these dramas passively. If you haven’t done so already, it’s time to wake up, smell the coffee and take defensive action.

I suggest you begin with four important lessons to be learned from these man-made disasters.

The first lesson should be self evident: Upheavals, revolutions and wars can easily disrupt the normal flows of goods and resources. They block shipping routes. They freeze or even gut production facilities. They can create a domino-effect of supply shortages around the globe.

The second is also obvious. The masses, if desperate or determined enough, can rise up to overthrow almost any regime anywhere. Fortunately, in Western countries, most rebellions are channeled through democratic processes. But to blindly assume we are somehow invulnerable to political turmoil is to ingeniously ignore history.

Third, although social movements rarely exclude ideological or religious overtones, the underlying driver is usually economic, and that is especially true of the most recent upheavals in Europe, the Middle East and North Africa: People are angry or anxious because they feel — or fear — the desperation of poverty.

But it’s the fourth lesson that I believe merits the closest scrutiny right now:

• The revolts on the streets of London and Western Europe have been primarily a reaction to massive government deficits and cutbacks. They are common symptoms of a deflationary crisis.
• In contrast, the revolts in the Middle East have been triggered by surges in the cost of living, among other causes. They are consequences of an inflationary crisis.

These are very different kinds or revolts, mandating very different protection or profit strategies:

• I believe a deflationary crisis can lead to a fundamental resolution down the road, especially if the sacrifices are shared by the rich and powerful. In this scenario, one of the best places for investors to find protection would be in long-term Treasury bonds.
• In contrast, an inflationary crisis merely prolongs the agony, threatening to destroy the middle class, polarize society and lead to far greater political upheavals down the road. Unfortunately, right now, it’s the inflationary path that our government is on. And in this scenario, the best place to find protection is in gold, silver, the world’s strongest economies and cash.

Ultimately, I have great confidence in mankind’s ability to overcome even the most extreme of challenges. But at this juncture, the United States has yet to begin that arduous process. We live an unrealistic lifestyle on borrowed money and borrowed time.

Nor am I alone in that view.

Financial Armageddon for America?

Senator Mark Warner (D-VA) says, “We’re approaching financial Armageddon.”

Representative Allen West (R-FL) says, “The economic situation here in the United States of America is a fiscal Armageddon.”

And Senator Joe Manchin (D-WV) declares, “We cannot ignore the fiscal Titanic of our national debt and deficit.”

These are timely warnings, especially given the fact that the Congressional Budget Office (CBO) just released a new report showing that President Obama’s budget will drive the deficit UP by an additional $2.3 TRILLION over the next 10 years.

So What Is Washington Going to Do About It?

There are two known choices:

• Like Ireland or the U.K., Washington could slash spending to the bone and risk the kind of political backlash we saw on the streets of London this past Saturday. That would set off a deflationary crisis. Or …
• Reminiscent of some countries in the Middle East, which have allowed inflation and poverty to destroy the trust of their citizens, we could pursue the path Washington is now on — “austerity be damned,” no sacrifices by the rich, more money printing and rising inflation.

Which one would you choose? Or is there a third choice?

If you’re my Facebook friend, let me know on my personal Facebook page by clicking here. If not, it’s easy to sign up and send me a friend request, which I’ll gladly accept right away.

Meanwhile, for my forecasts and protection plan, see my video presentation, “American Apocalypse.” Click here and it will begin playing immediately.