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“Wishful Thinking in the Extreme,” is how Peter Schiff, in his latest rant, describes the belief that the problems in Subprime will be isolated. He does a very good job of laying out the bear case for the nation’s economy and markets:

“Think of the U.S. economy as an unstable dam. The first leaks will be seen in the dam’s most vulnerable spot. But there will be many more leaks to follow. Before long, the entire dam will collapse. It would be a fatal mistake for those living downstream to assume a leak is an isolated event, unrelated to the integrity of the dam itself.

“The bursting of the technology stock bubble of the 1990s was simply the opening act. What we are about to experience with the real estate bubble is the main event. In that respect, though it may be March 2007, it sure feels a lot like March 2000. However, instead of a mild recession, this collapse will be followed by the most severe recession since the Great Depression.”

Many who read this will be tempted to call Schiff just another chicken little and dismiss his prediction. But an intelligent investor is open to every possibility. I think that everyone should recognize that what Schiff predicts is a possiblity. It can happen. I don’t know whether it will come to pass or not but I’m not willing to bet that it won’t.

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