Thursday, August 12, 2010

Schiff & Weiss

Some excerpts from a great interview of Peter Schiff with Martin Weiss:
"Let me first tell you what I think should have happened: A healthy cleansing of the economic system — an opportunity for the country to greatly reduce its huge debt burden. No matter how painful that might have been in the short term, it would have been the right thing for our country. But the politicians didn't want that to happen. Instead, they did whatever they could to postpone the pain; and in the process, they have now done far more damage to our country than we would have seen otherwise. They are continually acting in their own self-interests, but against the national interest."

"The government's Herculean efforts to counter the collapse of 2008 merely postponed the inevitable and compounded the problem. Result: The next crisis is likely to be WORSE than the last crisis would have been had they simply allowed it to happen."

"We're going to see a huge contraction in GDP regardless of what we do. Our economy is more than 70 percent consumption, and we're consuming too much. That's part of the problem. We have to consume less so we can start saving more. We have to transition from (a) a bubble economy based on excessive consumer credit and spending to (b) a stable, vibrant economy based on under-consumption, savings, capital investment, and production. That transition is going to necessitate a large, one-time downward adjustment in our GDP. Then we can right the ship. Then we can get out of this hole and start building the economy back up again. But the government refuses to allow this to happen, and therein lies our biggest problem."

"In real terms, especially in terms of gold, GDP is still going to plunge. Certainly in terms of our standard of living and quality of life, Americans are going to see a huge decline. No doubt about it! It's the inevitable result of years of reckless indulgences that cannot be undone. What's worse is that, instead of transitioning to a more wholesome economy based on savings and investment, we seem to be transitioning from a market-based economy to a centrally-planned economy, and that's a prescription for disaster."

"I am not sure about the precise magnitude, but the initial contraction would have been much greater had the government not intervened. Still, all the government really accomplished was to delay the pain. And I repeat: Precisely because of what the government has done, the ultimate decline in the economy is going to be MUCH worse than it would have been without the government's 'help.'"

"There are no more new rabbits. Just more of the same old bunnies that they keep multiplying — like printing more money. In fact, one of the last remaining hawks on the Federal Open Market Committee just came out yesterday and said the Fed needs to buy more Treasuries and more mortgages — more "quantitative easing." That's just a fancy way of saying they want more inflation ... which, of course, we need like a hole in the head."

"The value of the dollar is going to implode. That is the next big bubble to burst — the U.S. dollar and U.S. government bonds. In other words, the next crisis will be a currency crisis and a sovereign debt crisis! It's coming to the United States, and there's no escaping it."

"Instead, we need savings. We need under-consumption. We need capital investment and production. But every time consumers put their credit cards away and stop shopping, the politicians want to stimulate them more. It's as if every time a drunk stops drinking and starts to sober up, the politicians try to shove more alcohol down his throat. So I'm not confident there's going to be much opposition to government stimulus from a bunch of people in Congress who don't understand the first thing about economics, who have swallowed the Keynesian nonsense hook, line and sinker."

"I think the government's going to continue to throw gasoline on the fire they lit. That's all they know. They want to keep us spending. They want to keep asset prices from falling. They want to keep insolvent institutions afloat. And the only way to do that is to keep printing money because the politicians who are there don't want to face the music. They don't want to admit how severe the problems are — that they themselves are at the root of those problems, and that the solutions require less government. Instead, they want to play Santa Claus. And they want to vilify the market, vilify capitalism, and vilify the greed on Wall Street. But that isn't the cause of our problems — it's the greed in Washington, the greed for power. It's their subsidies and regulations that removed the fear and allowed private sector greed to run unchecked. And now they refuse to acknowledge the damage they've done to this economy."

Forget about "double dip." I do not believe the recession ever ended. In fact, I think we are in the early stages of a depression. True, GDP grew in the last few quarters, but none of that growth was real. It simply resulted from spending more borrowed money, which we now have to repay. If you net the debt out of the growth, we didn't really grow at all. We simply dug ourselves into a deeper hole. The most disturbing aspect of Friday's GDP numbers was the ballooning trade deficit. In fact, the trade deficit subtracted more from GDP in the second quarter than in any equivalent period since the early 1980s. And this is a time when our trade deficit should be shrinking! This is a time when we need to be exporting more and importing less. Instead, we're continuing to charge even more consumption on our national "credit card," and the entire country is going deeper into debt. The imbalances are getting wider, not narrower; we're in deeper trouble than we were before."

"Moreover, any extra economic activity was an illusion — the spending of borrowed money. And because we spent so much money to inflate our GDP, the economy must contract by that much more in the future as we repay those debts with interest."

"You can't put out a fire with gasoline, and if you decide to pour on even more, it's only going to give you a bigger fire. We are never going to have a sustainable recovery until we allow market forces to restructure our economy. And we can't do that until the government stops stimulating. We can't save money if we keep spending; we can't be productive if the government continues undermining our productivity. We need resources to invest in our future, but the government is taking them all. Plus, the government is encumbering the economy with more burdensome rules and regulations that prevent its restructuring and that make it less efficient. So it doesn't matter how much money they print — it's just pieces of paper. Yes, we can spend it for a while, but only as long as China, Japan, Germany and others keep taking it. Look. Last year, nobody was worried about Greece. They were just as indebted as they were this year, but nobody seemed to care. Then, suddenly the Greek crisis popped out of nowhere. Similarly, right now, it seems as though no one cares how much debt America has. But one day soon, they are going to care, and when they do, we're going to know it — big time!"

"Back then, people didn't care that dot.coms had no earnings ... until one day they woke up. They didn't care that subprime borrowers couldn't repay their mortgages ... until one day it hit them. Bubbles go on for a while, and then, all of a sudden, they burst. People behave irrationally for while, but sooner or later reality always rears its head. And in this case, I think it will be a lot sooner than just about anyone thinks."

"It could be the mother of all bubbles — especially if you consider the Treasury bubble and the dollar bubble as one in the same. I do. Because, from my perspective, the only thing worse than owning a dollar is owning the promise to be paid a dollar 30 years in the future!"

"They're going to continue stimulating, and sooner or later the bottom's going to drop out of the U.S. dollar. We could even begin to see a currency crisis before this year is out. Already, the dollar has now lost value for seven consecutive weeks. We don't know if its current downward momentum will accelerate or not. But right now, the dollar index is in the low 80s. If it cracks below 70, you can expect a free-fall. And when that happens, we'll start to see big increases in prices for things like food and energy, which will hurt a lot of Americans — both employed and unemployed alike. Worse, if the government prints more money — supposedly to help people better afford the higher prices — they will merely drive prices even higher. Or they might even impose price controls, which would create shortages and a different kind of disaster."

"They have built an economy that rests on the shaky foundation of low interest rates. They want interest rates to stay low indefinitely to prop up the housing market, to prop up the banks, and to prop up the federal government. But what if interest rates were to rise? Then, real estate prices would plunge further, financial institutions that got bailed out would fail again, and the Federal government would have to default on its debt — overtly or through deliberately created inflation. So the Fed MUST keep interest rates low or the foundation caves in, and entire house-of-cards economy falls apart."

"We have a shortage of savings in this country. Many of your readers want conservative investments with a decent yield. But there are none to be found. You can't put your money in a bank and receive a decent return — let alone after inflation and taxes are taken into consideration. You can't get better yields without exposing yourself to real dangers. How is anyone going to save money in this situation? So we need an interest rate that will balance this out. We need to encourage savings and discourage borrowing. Instead, borrowing is being massively stimulated, particularly for consumption and speculation."

"Moreover, I'm the last person to want bad times. If you could give me a time machine, I'd gladly go back to earlier decades and do everything in my power to make today's era a better time for us all. But now it's too late. Now your choices are: Do you want the government to just numb the pain again? Or do you want it to fix the problem this time?"

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