"The Bubble" coming in Spring 2013:
Friday, December 28, 2012
Wednesday, December 26, 2012
Peter Schiff: Gold is a Long-Term Investment
Peter Schiff spoke n CNBC’s Futures Now to hammer home the point that gold is a long-term investment that offers protection from volatile fiat currencies.
"You have this record physical demand. Not only in America, but around the world. I mean, think about it: what are you going to do if you want to save your money? …You’re going to hold dollars at zero percent with Ben Bernanke promising to print to infinity? You’re going to hold euros, you’re going to hold yen, the Chinese RMB? There’s no currency you can hold and be confident of its future purchasing power…People are figuring this out, they’re voting with their feet. They’re holding something with intrinsic value that has historically been money, that people like Ben Bernanke can’t print.", explained Schiff.
"You have this record physical demand. Not only in America, but around the world. I mean, think about it: what are you going to do if you want to save your money? …You’re going to hold dollars at zero percent with Ben Bernanke promising to print to infinity? You’re going to hold euros, you’re going to hold yen, the Chinese RMB? There’s no currency you can hold and be confident of its future purchasing power…People are figuring this out, they’re voting with their feet. They’re holding something with intrinsic value that has historically been money, that people like Ben Bernanke can’t print.", explained Schiff.
Thursday, December 20, 2012
Peter Schiff on the 91% Tax Rate
The fiscal cliff is now at hand. The President’s decision not to sign anything that does not raise the rates of taxes on the top 2% is definitely debatable. The 1950s are being touted, by Paul Krugman and Warren Buffett, as the country’s most successful period – with 91% top tax rate and still unbelievably fast growing GDP and individual wealth. As their opponent in this argument appears Peter Schiff.
Krugman claims that the top income bracket faced a 91% tax rate during the 50s, corporate profit taxes being twice as large at the same time. Furthermore, he says that years of high taxation after the Second World War brought to the United States an excellent speed of economic development, a good example – the 1947-73 doubling of family income. Warren Buffet has a similar point of view – he claims that during the extreme 91% tax-period he sold securities quite well.
In a Wall Street Journal publication, Peter Schiff confronts these arguments. His answer – the 50s tax rate was ‘symbolic’. In fact, top earners had to experience lower rates, compared to wealthy people nowadays. On The Daily Ticker, Schiff comments further on his argument.
Krugman claims that the top income bracket faced a 91% tax rate during the 50s, corporate profit taxes being twice as large at the same time. Furthermore, he says that years of high taxation after the Second World War brought to the United States an excellent speed of economic development, a good example – the 1947-73 doubling of family income. Warren Buffet has a similar point of view – he claims that during the extreme 91% tax-period he sold securities quite well.
In a Wall Street Journal publication, Peter Schiff confronts these arguments. His answer – the 50s tax rate was ‘symbolic’. In fact, top earners had to experience lower rates, compared to wealthy people nowadays. On The Daily Ticker, Schiff comments further on his argument.
Peter Schiff: Ben Bernanke throws the dollar over the Currency Cliff
The CEO and Chief Global Strategist of Euro Pacific Capital Peter Schiff accused the chairman of the Federal Reserve, which is the central bank of the United States, Ben Bernanke that he is working against the US dollar.
Wednesday, December 19, 2012
Peter Schiff: No Way Out
By upping the ante once again in its gamble to revive the lethargic economy through monetary action, the Federal Reserve's Open Market Committee is now compelling the rest of us to buy into a game that we may not be able to afford. At his press conference this week, Fed Chairman Bernanke explained how the easiest policy stance in Fed history has just gotten that much easier. First it gave us zero interest rates, then QEs I and II, Operation Twist, and finally "unlimited" QE3.
Now that those moves have failed to deliver economic health, the Fed has doubled the size of its open-ended money printing and has announced a program of data flexibility that virtually insures that they will never bump into limitations, until it's too late. Although their new policies will create numerous long-term challenges for the economy, the biggest near-term challenge for the Fed will be how to keep the momentum going by upping the ante even higher their next meeting.
The big news is that the Fed is now doubling the amount of money it is printing. In addition to its ongoing $40 billion per month of mortgage backed securities (to stimulate housing), it will now buy $45 billion per month of Treasury debt. The latter program replaces Operation Twist, which had used proceeds from the sales of short-term treasuries to finance the purchase of longer yielding paper. The problem is the Fed has already blown through its short-term inventory, so the new buying will be pure balance sheet expansion.
To cloak these shockingly accommodative moves in the garb of moderation, the Fed announced that future policy decisions will be put on automatic pilot by pegging liquidity withdrawal to two sets of economic data. By committing to tightening policy if either unemployment falls below 6.5% or if inflation goes higher than 2.5%, Bernanke is likely looking to silence fears that the Fed will stay too loose for too long. While these statistical benchmarks would be too accommodative even if they were rigidly enforced, the goalposts have been specifically designed to be completely movable, and hence essentially meaningless.
Bernanke said that in order to identify signs of true economic health, the Fed will discount unemployment declines that result from diminishing labor participation rates. It is widely known that a good portion of unemployment declines since 2009 have resulted from the many millions of formerly employed Americans who have dropped out of the workforce. But like many other economists, Bernanke failed to identify where he thinks "real" employment is now after factoring out these workers. So how far down will the unemployment number have to drift before the Fed's triggering mechanism is tripped? No one knows, and that is exactly how the Fed wants it.
Monday, December 17, 2012
Peter Schiff on Gold Prices
Despite
the downwards movement of the price of gold recently, the Euro Pacific Capital
CEO Peter Schiff says that this will not last for long. On Yahoo, he reports –
gold prices will jump over 5000 dollars.
In his
words, decisions still not made are now of great importance. He asks - how much
time will the world need to realize the fact that we have been conning interest
rates?
Schiff
describes the increasing debt of the US and the massive easing of the Federal
Reserve as ‘bullish’ towards the precious metal. When the world comes to the
conclusion that we ask for money in order to live a life beyond the means
possible, a much more significant dollar drop will come to pass. In order for
interest rates to remain low, more money will have to be printed by the Fed and
thus, the price of gold will explode.
Sunday, December 16, 2012
Peter Schiff on CNBC
Eamon Javers (CNBC) informs of the recent developments concerning the ‘fiscal cliff’. On this debate about the tax raise on top earners, we have the CEO of EPC (Euro Pacific Capital) Peter Schiff and Richard Brodsky – senior Demos fellow.
In his words, Peter Schiff’s total income, as a top earner, is almost in half going to the federal government, due to taxation. And next year, when those new tax hikes strike, more than 50% of his earnings will be spent on government taxes. He claims that the majority do not have the right to ‘steal his money’ just because they voted to do so.
Those taxes are going to be paid by employees – Schiff says. The wealthy will invest abroad and stop working as hard as they do now. They won’t give so much money for taxes and neither will they recruit as many employees.
In his words, Peter Schiff’s total income, as a top earner, is almost in half going to the federal government, due to taxation. And next year, when those new tax hikes strike, more than 50% of his earnings will be spent on government taxes. He claims that the majority do not have the right to ‘steal his money’ just because they voted to do so.
Those taxes are going to be paid by employees – Schiff says. The wealthy will invest abroad and stop working as hard as they do now. They won’t give so much money for taxes and neither will they recruit as many employees.
Saturday, December 15, 2012
Peter Schiff: The decline that’s coming from the dollar is going to be much bigger than what we saw in the 1970s
Peter Schiff appeared on Fox Business, discussing the future of the bond market and the dollar in relation to the value of gold. He compared the current situation to the 1970s inflation, but stressed that today we are facing much worse consequences.
"In 1971, when we went off the gold standard, in the next seven or eight years, the dollar lost two thirds of its value. That’s why oil prices went from three dollars to thirty dollars. That’s why we had all the inflation in the 1970s. I think the decline that’s coming from the dollar is going to be much bigger than what we saw in the 1970s. The fundamentals are much worse. Meanwhile, over the last five years, ten years, the dollar has been going down," said Schiff.
"In 1971, when we went off the gold standard, in the next seven or eight years, the dollar lost two thirds of its value. That’s why oil prices went from three dollars to thirty dollars. That’s why we had all the inflation in the 1970s. I think the decline that’s coming from the dollar is going to be much bigger than what we saw in the 1970s. The fundamentals are much worse. Meanwhile, over the last five years, ten years, the dollar has been going down," said Schiff.
Peter Schiff on the 91% Tax Rate
The fiscal cliff is now at hand. The President’s decision not to sign anything that does not raise the rates of taxes on the top 2% is definitely debatable. The 1950s are being touted, by Paul Krugman and Warren Buffett, as the country’s most successful period – with 91% top tax rate and still unbelievably fast growing GDP and individual wealth. As their opponent in this argument appears Peter Schiff.
Krugman claims that the top income bracket faced a 91% tax rate during the 50s, corporate profit taxes being twice as large at the same time. Furthermore, he says that years of high taxation after the Second World War brought to the United States an excellent speed of economic development, a good example – the 1947-73 doubling of family income. Warren Buffet has a similar point of view – he claims that during the extreme 91% tax-period he sold securities quite well.
In a Wall Street Journal publication, Peter Schiff confronts these arguments. His answer – the 50s tax rate was ‘symbolic’. In fact, top earners had to experience lower rates, compared to wealthy people nowadays. On The Daily Ticker, Schiff comments further on his argument.
Krugman claims that the top income bracket faced a 91% tax rate during the 50s, corporate profit taxes being twice as large at the same time. Furthermore, he says that years of high taxation after the Second World War brought to the United States an excellent speed of economic development, a good example – the 1947-73 doubling of family income. Warren Buffet has a similar point of view – he claims that during the extreme 91% tax-period he sold securities quite well.
In a Wall Street Journal publication, Peter Schiff confronts these arguments. His answer – the 50s tax rate was ‘symbolic’. In fact, top earners had to experience lower rates, compared to wealthy people nowadays. On The Daily Ticker, Schiff comments further on his argument.
Friday, December 14, 2012
Ditching Before The Fiscal Cliff
Turn on the TV and this is what you'll hear: The US budget is heading for a fiscal cliff. If a deal isn't reaching in Congress by the end of this year, a combination of automatic tax hikes and budget cuts will sink America into economic depression. There is no escape.
Of course, my readers know that the fiscal cliff is merely an example of the piper having to be paid. The problem isn't the bill, but that we ran it up so high in the first place. Any deal to avoid the cliff by borrowing even more money may allow the piper to keep playing a while longer, but when the music finally stops, the next fiscal cliff will be that much larger.
My readers also know that there are several ways for investors to avoid the cliff altogether. Perhaps the most secure is buying precious metals. However, given what we know, it may seem confusing that the spot prices of gold and silver have been moving sideways.
However, these headline prices have largely concealed a more important indicator: physical bullion sales are booming.
An Under-the-Radar Rally
The figures are astounding. For US Gold Eagle coins, mint sales are up some 150% from the QE3 announcement on September 13th. Despite what the spot prices show, there has been a tremendous surge in people buying physical gold.
But why hasn't this translated into higher spot prices?
It seems clear that the spot prices of both gold and silver are being driven right now by a large pool of institutional capital moving into and out of instruments like commodity ETFs. The movements have been predictable: When there is a sign of a deal coming out of Washington, the spot prices move up. If negotiations are faltering, there is instead a major selloff.
Physical bullion investors are a different breed. We are in this market for the long haul. When I increase my physical gold and silver holdings, I do it because I see the long-term fundamental picture for the US getting worse.
Getting a Read on the Bullion Bull
While the ETF speculators are trying to anticipate the market's - and each other's - immediate reaction to whatever 11th hour deal is struck, I believe physical bullion investors are sending a clear signal: this whole debate is out of order.
A J.P. Morgan study concluded that 82% of the hit to GDP if we go over the fiscal cliff would be related to tax increases, not spending cuts. And if the legislators reach a deal? It will only result in more tax increases and much fewer spending cuts. These guys just don't get it.
Looking back to the debt ceiling debate of August 2011, we saw big movements into physical gold there as well. What investors are concluding as they hear these grand debates is that whatever the result, the budget, the dollar, and the taxpayer will lose.
They are deciding to get off this runaway train. Because the real fiscal cliff isn't coming on December 31st - it is coming when there is a global flight from the US dollar.
The Real Fiscal Cliff
The Democrats are complaining that the fiscal cliff imposes too steep demands on those who receive entitlements. Republicans are trying to protect the military budget. What no one seems to want to address is what happens as foreign creditors increasingly decide to stop financing this bonanza.
To a large extent, this is already happening. China has already become a net-seller of Treasuries and is diverting more of its reserves into gold. The Chinese government recently approved banks holding gold as a reserve asset and made it easier for banks to trade gold amongst themselves.
While Japan and other Keynes-drunk governments have filled some of the gap with increased purchases, a supermajority of new issues are being bought directly by the Fed. That was the idea behind QE3 Plus, as described in last month's commentary.
Because of the acute trauma in Europe and certain institutional mandates to hold Treasuries, much of this new inflation is being absorbed. This has caused what may be the most dangerous of situations. It has allowed the inflationists to paint people like me as the boy who cried wolf. It seems to them that no matter how irresponsible Congress and the Fed are, we are immune from economic consequences.
In reality, all this money printing is like pulling back a spring. Pent up inflationary forces are building, and when they are unleashed, the debate will be over faster than they can say "oops."
The Only Way to Win Is Not to Play
Those buying into physical gold and silver see this inevitability and are getting prepared. We believe there is no sense playing Russian roulette with our savings. Every time Washington raises that debt ceiling or announces another stimulus, it's like one more click of the trigger.
When the global markets finally wrap their heads around the scale of US insolvency, the response will be as fierce as it is rapid. In such a once-in-a-century scenario, physical gold and silver are among the few assets without counterparty risk. From the looks of the physical bullion sales charts, I'm not the only investor who has figured this out.
Thursday, December 13, 2012
Peter Schiff: The wealthy are going to invest more abroad
Peter Schiff came with another dark prediction about the US economy on CNBC’s Closing Bell recently. He talked about his recent commentary in The Wall Street Journal, explaining why raising taxes on the wealthy will do nothing to solve the debt problems of the US.
"You know what the wealthy are going to do? They’re going to invest more abroad, they’re not going to work as hard, they’re not going to pay as much in taxes, they’re not going to employ as many people, their employees aren’t going to pay the taxes," stressed Peter Schiff.
"You know what the wealthy are going to do? They’re going to invest more abroad, they’re not going to work as hard, they’re not going to pay as much in taxes, they’re not going to employ as many people, their employees aren’t going to pay the taxes," stressed Peter Schiff.
Saturday, December 8, 2012
Peter Schiff: The Fantasy of a 91% Top Income Tax Rate
Democratic Party leaders, President Obama in particular, are forever telling the country that wealthy Americans are taxed at too low a rate and pay too little in taxes. The need to correct this seeming injustice is framed not simply in terms of fairness. Higher tax rates on the wealthy, we're told, would help balance the budget, allow for more "investment" in America's future and foster better economic growth for all. In support of this claim, like-minded liberal pundits point out that in the 1950s, when America's economic might was at its zenith, the rich faced tax rates as high as 91%.
True enough, the top marginal income-tax rate in the 1950s was much higher than today's top rate of 35%—but the share of income paid by the wealthiest Americans has essentially remained flat since then.
In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51%.
So if the top marginal tax rate has fallen to 35% from 91%, how in the world has the tax burden on the wealthy remained roughly the same? Two factors are responsible. Lower- and middle-income workers now bear a significantly lighter burden than in the past. And the confiscatory top marginal rates of the 1950s were essentially symbolic—very few actually paid them. In reality the vast majority of top earners faced lower effective rates than they do today.
Wednesday, December 5, 2012
Peter Schiff: Doing Away With Ceiling Drama
Treasury Secretary Timothy Geithner made news last week by proposing to transfer the Congressional prerogative to raise the debt ceiling to the President. The change would essentially do away with the meaningless debt ceiling debates that have become ritual kabuki in Washington over the past few generations. Most Republicans have dismissed the proposal as a blatant executive power grab that will significantly weaken both the Congress and the minority party. While this is certainly true, Congress will only lose a power that it has never shown the slightest courage to actually use. But in truth, the proposal has the merit of refreshing honesty. By telling U.S. taxpayers, and the world in general, that the U.S. government has no intention of ever balancing its budget or limiting its accumulation of unsustainable debt, then perhaps we can begin to have an honest discussion about our economic future.
Congress has always decided how much money the U.S. government will spend and how it will tax the citizenry to meet those obligations. Geithner's proposal will change none of that. The debt ceiling debates have been simply to authorize the U.S. Treasury to issue debt to cover the ever widening gap between what Congress spends and what it taxes. As a result, these debates have become nothing more than exercises in feigned outrage. If Congress wants to control the debt, let them do so. If they don't care, just continue on the current path. Dropping the pretense is at least more honest.
The move will also help blunt the ridiculous assertions made by those in favor of lifting the debt ceiling that doing so somehow means that the United States is taking the prudent and moral step of "paying its bills."
Sunday, December 2, 2012
Peter Schiff: Black Friday and Cyber Monday not healthy for the US economy
Peter Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, explains why Black Friday and Cyber Monday are not healthy for the US economy, as so many people seem to believe.
He then elaborates on how the markets have responded to the likelihood that Congress will continue to kick the can of deficit reduction down the road by avoiding the fiscal cliff.
He then elaborates on how the markets have responded to the likelihood that Congress will continue to kick the can of deficit reduction down the road by avoiding the fiscal cliff.
Saturday, December 1, 2012
Peter Schiff taking on hyperinflation, US economy and the strength of the US dollar
Peter Schiff shares his thoughts about the hypeinflation in the USA in Capital Account. He urges that if the things continue the same way in the US economy there will be hyperinflation. He also speaks about the future of the US economy and the strength of the US dollar.
Thursday, November 29, 2012
Peter Schiff: Patriotic Millionaires Unmasked
Despite the breathless post-election "think pieces" that have drawn sweeping and deeply considered conclusions about the political drift of the country, at its core President Obama’s re-election is easy to understand. He essentially promised millions of middle and working class voters that if he were to be re-elected, they would receive benefits paid for by the rich. You don’t need to read a Time Magazine cover story to untangle this political strategy. Now that he has been given a second term, Obama needs to deliver the goods by raising taxes on the rich and only the rich. He will be "asking" them to pay their "fair share," (as if "asking" and "fairness" have anything to do with it). In reality the wealthy already pay taxes at a much higher rate than average Americans and in many cases will now have to pay more than half of their income in federal, state, and local taxes.
While most people would assume that the wealthy would chafe at such a heavy burden, some affluent individuals have apparently organized spontaneously to express their willingness to help the country. In interviews and articles, these self described "Patriotic Millionaires" have implored Congress and the President to raise their taxes. They claim they can easily afford to pay a little more to save the nation from fiscal insolvency.
Conservative economists believe that an economy is most vibrant when as much money as possible is left in the private sector where it can be used for business investment and job growth. Left wing economists believe that government spending, which they term “investment,” does more good. Through this lens, it’s tempting to see the Patriotic Millionaires as well meaning Americans who have simply subscribed to a misguided economic philosophy. However, the reality may be far more sinister.
Tuesday, November 27, 2012
Peter Schiff asks: Is a college degree worth the cost? Well, you decide
President Obama promotes the myth that everyone must go to college. That if you don't go, your life will be ruined -- that you will end up waiting tables, or trapped in some other mundane occupation. The truth is, even with a college degree, you may still end up waiting tables, you'll just begin your "career" four or five years later, tens of thousands of dollars in debt.
Here is an example of some of the plumb jobs college grads were able to land during the Obama administration. Not just liberal arts majors mind you, but graduates with degrees in mathematics, robotics, neuroscience, engineering, accounting, business administration, economics, biology, communications, graphic design, marketing, and linguistics.
Of course when it comes to education, it's not just the Obama administration that deserves a failing grade. For years, politicians of both parties have pandered to students by promising more aid in the form of direct or subsidized student loans. As a result, colleges and universities are freed from competitive forces that would otherwise keep tuition low. Easy access to cheap credit enables students to bid up tuition, benefiting the educational establishment at their expense. Politicians secure student's votes by promising relief from skyrocketing tuition by providing even more loans. Ironically, the loans themselves are the very reason tuition is so high in the first place.
Before the Federal Government got involved, college degrees were much more affordable, and ambitious students from poorer families could easily work their way through. In addition, as fewer high school graduates actually went on to college, not only were college degrees much less expensive to obtain, they were far more valuable to have. With so many high school grads going on to college, a college degree is actually less valuable in today's job market, despite its inflated price tag, than was a high school diploma in the 1950s. The only solution is to get the Federal Government completely out of higher education, and let the free market fix what the government broke!
For those of you who feel a college degree is essential to financial success consider John D Rockefeller and Andrew Carnegie. Rockefeller dropped out of high school and began working full-time at age 16. Carnegie didn't even go to high school and began working full-time at age 13. Both men were born poor and became self-made billionaires, with estimated net worths at their deaths (in today's dollars) of $670 and $300 billion respectively. To put those numbers into perspective, the richest living American, Bill Gates, who dropped out of Harvard during his sophomore year, has an estimated net worth of just $65 billion.
Saturday, November 24, 2012
Peter Schiff is embracing the fiscal cliff
The fiscal cliff has long been the chief problem of the U.S. economy and the uncertainty has created a volatile marketplace. Each and every political party has its own ideas how to act when the fiscal cliff comes. Peter Schiff not an exception as he has spoken his mind is concerning the U.S economy.
In a time of such worry for the next year’s potential threat to the United States, Schiff is embracing the fiscal cliff.
“The truth is that, regardless of what you call it, going over the fiscal cliff is not the problem, it is part of the solution. Our leaders should construct a cliff that is actually large enough to restore fiscal balance before a real disaster occurs,” he commented.
Moreover, he is of the opinion that the fiscal cliff will inevitably lead to cuts in government spending which would put the country on the right track. Furthermore, Peter Schiff navigates the cliff. Even though markets may get slaughtered and the dollar might endure a crisis, the real assets do offer compelling investment. Schiff, of course, has mentioned many times that he had chosen gold to help his portfolio because he believes that the dollar will bear a major debasement, which would make silver and gold especially attractive to investors.
In a time of such worry for the next year’s potential threat to the United States, Schiff is embracing the fiscal cliff.
“The truth is that, regardless of what you call it, going over the fiscal cliff is not the problem, it is part of the solution. Our leaders should construct a cliff that is actually large enough to restore fiscal balance before a real disaster occurs,” he commented.
Moreover, he is of the opinion that the fiscal cliff will inevitably lead to cuts in government spending which would put the country on the right track. Furthermore, Peter Schiff navigates the cliff. Even though markets may get slaughtered and the dollar might endure a crisis, the real assets do offer compelling investment. Schiff, of course, has mentioned many times that he had chosen gold to help his portfolio because he believes that the dollar will bear a major debasement, which would make silver and gold especially attractive to investors.
Wednesday, October 24, 2012
Peter Schiff: The second Presidential debate was like two kids arguing on a playground
American investment expert and radio show host Peter Schiff shares his thoughts about the second Presidential debate in the United States of America. In his opinion, the Presidential "debate" between Pres. Obama and Gov. Romney looked more like a Democratic Primary debate. As far as substance is concerned neither candidate won, and the biggest loser was the voter. Here is his recap of the low lights. Too bad Gary Johnson wasn't on stage to advocate for free market solutions to government created problems.
Monday, October 22, 2012
Peter Schiff hits on the inflation once again
Peter Schiff takes on the inflation in the USA once again after Fox News Presidential Poll confirms that inflation is a bigger concern for voters than unemployment and the housing market combined. In fact, more than twice as many registered voters are concerned about the "inflation" tax as are worried about all other federal taxes combined!
Wednesday, October 17, 2012
Washington is Blind to Main Street's Biggest Concern, believes Peter Schiff
Journalists, politicians and economists all seem to agree that the biggest economic issue currently worrying voters is unemployment. It follows then that most believe that the deciding factor in the presidential race will be the ability of each candidate to convince the public that his policies will create jobs. It seems that everyone got this memo...except the voters.
According to the results of a Fox News poll released last week (a random telephone sample of more than 1,200 registered voters), 41% identified "inflation" as "the biggest economic problem they faced." This is nearly double the 24% that named "unemployment" as their chief concern. For further comparison, 19% identified "taxes" and 7% "the housing market" as their primary concern. A full 44% of women, who often do more of the household shopping and would therefore be more sensitive to prices changes, identified rising prices as their primary concern.
While these statistics do not surprise me, they should shock the hell out of the establishment. According to the Federal Reserve, inflation is not a concern at all. Time after time, in front of Congress and the press, Fed Chairman Ben Bernanke has said that inflation is contained and that it is below the Fed's "mandated" rate of inflation (whatever that may be.) The Bureau of Labor Statistics is saying the same thing. The measures they use to monitor inflation, such as the Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE), show annual inflation well below 2%. In fact, the GDP price deflator used by the Commerce Department to calculate the second quarter's 1.3% annual growth rate assumed annual inflation was running at just 1.6%.
In fact, Bernanke thinks inflation is so low that he is actually worried about deflation, which he believes is a more dangerous issue. As a result, he is recommending policies that look to raise the inflation rate, not just to combat the phantom menace of deflation but to boost the housing market and reduce unemployment. He mistakenly believes these problems are the ones that concern Americans the most.
Monday, October 15, 2012
Peter Schiff: We are losing the jobs we need and gaining the ones we don’t
The US gained 114,000 jobs on the month, but 10,000 of them were government positions while there was a loss of 16,000 manufacturing jobs in September. "We are losing the jobs we need and gaining the ones we don’t," commented Schiff and added that the USA do not need more people working for the government, as they derive their salaries from the private sector.
Peter Schiff explained that the increase of the government jobs is not that good, because these are non-productive and they actually make USA poorer as a nation because they add to the overall tax burden and trade deficit. According to Mr. Schiff, the government employees create an imbalance in economy. The reason for this is that they do not produce anything, which will force the jobs to be lost when the economy restructures. And the reasonable question is in that case, how was the unemployment rate able to fall so rapidly?
According to a household survey, 873,000 jobs were added in September. These numbers are the largest of its kind in nearly 30 years. Schiff adds the caveat that a large number of these were part-time employment. Mr. Schiff goes on to rather bluntly hypothesize that the massive jump in part-time work came from those who have finally used up unemployment and were forced to go out and find some kind of work.
The U-6 unemployment rate, a much more effective measure of our actual employment, was virtually unchanged for the month, staying a tick under 15%. Just another reason that we all need to take official unemployment numbers with a grain of salt. With the approach of the holiday season, part-time work will spike and could potentially decrease the unemployment figure even further, which is not a real indicator of the unemployment rates fall.
Wednesday, October 10, 2012
Peter Schiff: Riding Into the Sunset or Brick Wall?
A month ago, I presented the case for why Fed Chairman Bernanke would have strong motivation to launch another round of quantitative easing (QE) before the election. In short, it would save him his job. Now, I didn't predict with certainty that he would do so - only the few men at the FOMC knew that for sure - but it seemed likely. Shortly thereafter, Bernanke not only announced more stimulus, but promised to keep it flowing to the tune of an additional $40 billion a month until conditions improve. As I had written, this is essentially the election platform of the Obama-Bernanke ticket: we will keep the party going indefinitely.
Unfortunately, though these are two powerful men, they are not above the law of economics. While critics have dubbed this program "QEternity" or "QE-Infinity", it will end much before that. We are witnessing a massive bubble in US government debt, and we've reached the point where no one in charge believes it will ever end - an excellent contra-indicator.
Rather than going on for eternity, this third round of QE is only hastening the day when there is a flight of confidence from the dollar and US Treasuries. This will cause a sharp rise in market interest rates and surging consumer prices across America. If you think $4 a gallon gas is bad, wait till you see it going up by 25¢ or more per week.
At this point, the Fed Chairman will have a choice to make: keep printing, which will push the dollar into uncontrollable hyperinflation, or begin tightening, which will bankrupt the US government and banking system.
I have long written about this Sophie's choice confronting the Fed, but so far the printing option has been too easy. With the world only slowly abandoning the dollar as the reserve currency and the euro crisis offering a distraction, the Fed has been able to more than double the money supply without US consumers seeing out-of-control price hikes at the store. Not that there hasn't been inflation - look at housing, gas, or the stock market - but it hasn't reached crisis proportions. When prices start rising fast enough for the average person to figure out he's being screwed, then there will be riots in the streets.
Tuesday, October 9, 2012
Peter Schiff: Do not wait for the recession, it is already here
Schiff's arguements about United States already being in another recession are based on a few different metrics. He points out that government data shows we are growing at 1.3% while inflation is currently at 1.6%. Schiff believes that if inflation is truly at 3% then United States of America is already in a recession. He is suggesting inflation numbers are being under reported or covered up for the time being.
Schiff goes on to point out another metric stating that while the Dow Jones may be higher, it has lost 80% of its value in terms of gold over the past 12 years. This comes to show that Schiff feels quite strongly that gold is the only real measure of currency for the world, so the stock markets should be measured against that instead of a flimsy fiat currency. Schiff also pointed out that the stocks are not going higher, the dollar is simply getting weaker. He finishes things off by predicting a rise in interest rates to combat inflation, sending us headfirst off the fiscal cliff.
Tuesday, October 2, 2012
Peter Schiff and Jim Rogers comment on Q3
To begin with, Peter Schiff has said and read a lot about this policy, which clearly is a heated subject, given the fact what his opinion on it is. According to Schiff, the Federal Reserve should have let the economy fail 3 years ago and that all the rounds of quantitative easing are just delaying the inevitable. He thinks that the bold policy of Ben Bernarke will in fact inhibit job creation and growth. He has also been quite vocal that the Fed will never succeed in producing a vibrant economy by means of money printing. Schiff has also predicted the dollar index dipping to even 20 and that the real assets like gold or silver are the best thing for investors.
Jim Rogers is the second one who has voiced his opinion on the policy. He is of the opinion that the Federal Reserve do not know what they are doing and the strategy of printing money will not do a difference to the economy. Jim has predicted another deep recession in the next 5 years and both he and Peter Schiff feel that there is a financial crisis coming.
Rogers wants to take a dig at the presidential candidates and he does not care about the outcome of the elections. According to him, neither candidate understands the real issues of the economy nor is none of them able to fix it. He has touted investments like precious metals and agriculture, even though he has stated many times that he thinks silver is a better investment than gold.
Friday, September 21, 2012
U.S. democrats against profits
Posing as an anti-business crusader, Peter Schiff found a number of DNC delegates and attendees who support explicitly outlawing profitability.
Monday, September 17, 2012
Peter Schiff: Let The Economy Fail
This might sound strange to some of the market analysts, but Mr. Schiff is very well known about his rather unorthodox views, like for example, his prediction of gold hitting $5,000 per ounce. He also is follower of the ideas that U.S. must return to a gold standard. Peter Schiff has an opinion and he is not afraid to share it with ones that are willing to listen.
Schiff stated in recent article that U.S. economy’s growth has been sluggish at best since the recession began. According to him, current policies and plans to help put it on the right track are actually hurting Americans in the long run. All of the money printing and quantitative easing is doing more harm than good according to the investing expert.
"There is an ongoing three way debate between those who believe the Fed should do more to strengthen the recovery, those who believe that the recovery is strong enough to continue on its own, and those who believe that the economy has been so fundamentally altered by the recession that no amount of stimulus can succeed in pushing unemployment down to pre-crash levels. As usual, they all have it wrong (although some are more wrong than others)", believes Peter Schiff.
He debunks the theory that the recovery is on the way or the least bit sustainable, and also combats the idea that the Fed is able to do anything more with its asset purchasing programs and printing. "The simple truth however, is that our economy has a disease that all the quantitative easing in the world can’t cure. And while the wrong medicine may make us appear healthier in the short term, we will continue to deteriorate beneath the surface", he says.
Schiff believes that the Fed should not only not implement a third round, but it should remove whatever actions are already in place, rather than continue with QE programs. That, of course, would result a big dip in the economy and likely a sizable drop in stock markets, but Schiff feels that the market needs to naturally recover from the misallocations that have been made in an effort to keep our country afloat.
That road, if taken, will be a very difficult one and will likely be more painful than the 2008 recession given our high debt levels and the amount of borrowing that consumers have been encouraged to participate in via zero interest rates. While monetary stimuli may create jobs or wealth in the short term, Schiff points out that "any jobs created as a result of cheap monetary stimulus are jobs that won’t be able to survive absent that support". He compares the Fed actions to a construction crew continually building skyscrapers on bad supports.
Monday, August 27, 2012
Peter Schiff: Mario Draghi’s Commentary Means Gold Prices Will Retest 2011 Highs (GLD, IAU, PHYS, DZZ, SLV)
Jared Cummans: European Central Bank president Mario Draghi caused quite a commotion last week when he stated that the ECB would do anything in its power to save the euro. Stocks soared and investors saw a bit of confidence return to the market. That was quickly followed by healthy GDP figures from the U.S., allowing a number of assets to climb even higher. Among the best performers was gold, as investors felt the commodity was poised for gains given the commentary from Draghi as well as the wide assumption that Bernanke and the Fed are ready to print more money [see alsoThree Reasons Why Gold Is Overvalued].
One of the most prolific names talking about gold was investing guru Peter Schiff. Schiff, of EuroPacific Capital, has been known for his relatively bold predictions concerning the precious metal, including his firm belief that it is headed towards $5,000 per ounce. Now, Schiff has stated that Draghi’s most recent comments paint a bullish picture for gold, as it will mean that the ECB will be forced to print more money, devaluing the euro versus gold.
“If gold breaks above the $1,650 level with conviction, then I think we are looking at retest of the all-time highs from late summer of 2011″ said Schiff, “I think, ultimately, we take out the highs and we go a lot higher. At some point, if I’m right, these gold stocks are going to take off because they have a lot of catching up to do” [see also Why Jim Rogers Thinks Gold Will Drop 20%].
Read full article: http://etfdailynews.com/2012/08/02/peter-schiff-mario-draghis-commentary-means-gold-prices-will-retest-2011-highs-gld-iau-phys-dzz-slv/
One of the most prolific names talking about gold was investing guru Peter Schiff. Schiff, of EuroPacific Capital, has been known for his relatively bold predictions concerning the precious metal, including his firm belief that it is headed towards $5,000 per ounce. Now, Schiff has stated that Draghi’s most recent comments paint a bullish picture for gold, as it will mean that the ECB will be forced to print more money, devaluing the euro versus gold.
“If gold breaks above the $1,650 level with conviction, then I think we are looking at retest of the all-time highs from late summer of 2011″ said Schiff, “I think, ultimately, we take out the highs and we go a lot higher. At some point, if I’m right, these gold stocks are going to take off because they have a lot of catching up to do” [see also Why Jim Rogers Thinks Gold Will Drop 20%].
Read full article: http://etfdailynews.com/2012/08/02/peter-schiff-mario-draghis-commentary-means-gold-prices-will-retest-2011-highs-gld-iau-phys-dzz-slv/
Peter Schiff: Republicans Hope, But Don’t Change
For much of the past few generations, the debate over balancing the federal budget has been a central feature of every presidential campaign. But over time, the goalposts have moved. As the amount of red ink has grown steadily larger, the suggested time frames to restore balance have gotten increasingly longer, while the suggested cuts in government spending have gotten increasingly shallower. In recent years, talk of balancing the budget gave way to vague promises such as “cutting the deficit in half in five years.” In the current campaign, however, it appears as if the goalposts have been moved so far that they are no longer in the field of play. I would argue that they are completely out of the stadium.
It says a great deal about where we are that the symbolic budget plan proposed last year by Congressman Paul Ryan, the newly minted vice presidential nominee, has created such outrage among Democrats and caution among Republicans. The Obama campaign warns that the Ryan budget is a recipe for national disaster that will pad the coffers of the wealthy while damning the majority of Americans to perpetual poverty. The plan is apparently so radical that even the Romney campaign, while embracing the messenger, is distancing itself from the message (it appears that Romney wants to bathe himself in the aura of fresh thinking without actually offering any fresh thoughts). In interview after interview, both Romney and Ryan refuse to discuss the details of Ryan’s budget while slamming Obama for his callous “cuts” in Medicare spending.(It is extremely disheartening that the top point of contention in the campaign this week is each candidate’s assertion that their presidency could be the most trusted not to cut Medicare. Mindful of vulnerabilities among swing state retirees, Republicans have also taken Social Security cuts off the table as well. What hope do we have of reigning in government spending when even supposedly conservative Republicans refuse to consider cuts in the largest and fastest growing federal programs?)
So what was the Ryan Budget’s radical departure from the status quo that has caused such uproar? If enacted today, the Ryan budget would so drastically upend the fiscal picture that the U.S. federal budget would come into balance in just… wait for it…. 27 years! This is because the Ryan budget doesn’t actually cut anything. At no point in Ryan’s decades long budget timeline does he ever suggest that the government spend less than it had the year before. He doesn’t touch a penny in current Social Security or Medicare outlays, nor in the bloated defense budget. His apocalypse inducing departure comes from trying to limit the rate of increase in federal spending to “just” 3.1% annually. This is below the 4.3% rate of increase that is currently baked into the budget, and farther below what we would likely see if Obama’s priorities were adopted.
Read Full Article:
http://marketplayground.com/2012/08/17/peter-schiff-republicans-hope-but-dont-change/
Peter Schiff: Major Development In Metals; “The Time To Buy Cheap Will Soon Be Gone” (GLD, SLV, IAU, AGQ)
Mac Slavo: With the Congressional Budget Office reporting that the United States will soon fall off the fiscal cliff unless the government takes immediate action, the Federal Reserve weighing another round of heavy-hitting monetary expansion, and the Republican Party now apparently jumping on board the gold standard train, the stars for precious metals seem to be in alignment. So says Peter Schiff, CEO of Europacific Precious Metals.
Having been ahead of gold’s massive upward move years before the bursting of the real estate bubble and crash of 2008, Schiff says there has been a “major development in precious metals,” and if you don’t have any gold or silver yet, this may be your last chance before they head to new record highs.
Read Full Article:
http://etfdailynews.com/2012/08/24/peter-schiff-major-development-in-metals-the-time-to-buy-cheap-will-soon-be-gone-gld-slv-iau-agq/
Having been ahead of gold’s massive upward move years before the bursting of the real estate bubble and crash of 2008, Schiff says there has been a “major development in precious metals,” and if you don’t have any gold or silver yet, this may be your last chance before they head to new record highs.
Read Full Article:
http://etfdailynews.com/2012/08/24/peter-schiff-major-development-in-metals-the-time-to-buy-cheap-will-soon-be-gone-gld-slv-iau-agq/
Thursday, July 5, 2012
Monday, June 18, 2012
Peter Schiff on avoiding the brick wall
Peter Schiff, who was famously ridiculed for calling the crisis of 2008, steps up as a prognosticator again in his new book, The Real Crash: America’s Coming Bankruptcy - How to Save Yourself and Your Country.
We had way too much government and cheap credit leading up to 2008, he
says, and even more government and cheap credit since then, which is why
the next crisis will be the real haymaker.
His book is divided into two main sections. Part I addresses the problems, while part II, which is by far the lion’s share of his discussion, presents solutions. In a nutshell, the problem is government, and the solution is to take an ax to it - again and again. Since this view is currently unacceptable to policymakers and the public at large, we can only hope reality will win out before calamity hits.
The Real Crash is encyclopedic in its coverage and highly readable in its presentation. Is there a government agency that truly serves the interests of all Americans? He finds few. What about services people actually want, such as K-12 education: Could they be done better at the state or local levels? Or better still by the free market? In most cases the answer is a profound “Yes!” to both.
Living on Bubbles
Our problems stem from a love of bubbles and the flawed economic theory that blesses them.
During Alan Greenspan’s reign at the federal reserve we had a savings and loan bubble, followed by a tech bubble, followed by a housing bubble. Now with Ben Bernanke at the Fed, we have a government bubble, meaning the Fed is creating money that the banks are then lending to the Treasury to expand government. “If you keep replacing one bubble with another, you eventually run out of suds. The government bubble is the final bubble.”
When the dot-com and housing bubbles burst we at least had something to show for them - “a few good Internet companies and some pretty nice McMansions, [but] no such benefits will remain when the government bubble pops.”
The Fed, Schiff says, should let interest rates rise so people can start saving again. The Fed’s low rates discourage savings, which are
But rising rates and the terrible pain it would cause is the good news; the bad news, if the Fed continues to hold rates low, is the economy will eventually go into hyperinflation. “Rising interest rates will be productive pain— like medicine,” he writes, “while hyperinflation will be destructive pain.” If we stay the course and pretend everything will somehow work out, we could be facing a crisis worse than the Great Depression.
Bernanke on the Great Depression
Chairman Bernanke, of course, is well-known as an “expert” on the Great Depression, and many people are betting the farm that he and his Keynesian staff have the skills to steer us back to sunny beaches and bikinis. Bernanke’s approach is to keep asset values from falling by any and all means. One of the reasons the depression of the 1930s became great, he believes, is because the Fed allowed the money supply to fall following the Crash. With less money in the economy, prices nosedived. People didn’t consume as much, consequently businesses didn’t profit as much, therefore employees got fired, and the economy headed south in a self-perpetuating spiral.
“Sustained deflation can be highly destructive to a modern economy and should be strongly resisted,” Bernanke said in a 2002 speech that inspired his nickname. And by deflation, he means “falling prices.”
Schiff explains what’s wrong with this analysis.
First, for 100 years prior to the 1929 Crash, bank deposits actually gained value each year. In other words, we had a century of deflation, that much-feared condition that Bernanke has vowed to avoid at all costs.
Second, from mid-1921 to mid-1929, the Fed increased the money supply by 55 percent, giving rise to a real estate and stock bubble. Most but not all economists missed the bubble and its inevitable consequences because rising productivity kept consumer prices fairly stable. Even as stock prices were falling only days before the Crash, Irving Fisher said stocks had reached a “permanently high plateau,” and he expected to see “the stock market a good deal higher than it is today within a few months.” In 1928, Ludwig von Mises had published a full critique of Fisher’s monetary theory, claiming that Fisher’s reliance on price indexes would bring about the Great Depression. Nonetheless, Fisher’s stable price theory carried the day, and when the sky fell the Fed, along with Hoover, “did something,” as Schiff explains:
Not by itself. Hoover insisted on keeping wages high, and during his re-election bid in 1932 boasted that the wages of U.S. workers were “now the highest real wages in the world.” They probably were, and by not allowing wages to fall along with other prices, unemployment soared.
End Keep the Fed
The one puzzling part of Peter Schiff’s masterpiece is his view that the federal reserve, as originally conceived, was a good idea. He describes the Fed as “reckless,” the “biggest culprit in discouraging savings,” and insists “we never should have trusted the Fed to respect its boundaries.” But he also says:
Thus, he concludes, it was natural “for bankers to hatch an idea of a “banks’ bank. Banks could deposit some of their assets— commercial paper or gold— with the Fed, and the Fed in return would issue its own bank notes to the individual bank.”
While this may sound plausible, questions arise as to (1) why the “banks’ bank” needed “guns and badges” (i.e., government cartelization) to make it work; (2) why loan portfolios or commercial paper can be assumed to be an acceptable substitute for gold coin; (3) why a central bank is needed to expand and contract the money supply - in other words, why assume the supply/demand relation of the free market fails when the good in question is commodity money; (4) why the historical record of central banks acting as an agent of stability and sustainable economic growth is short on examples; and (5) why did the Fed, at its creation, possess a massive inflationary structure if it was sold as a means to promote stability?
I believe central banking, by its nature, is a means of institutionalizing, centralizing, and cartelizing moral hazard. It is my view that the Fed was never a good idea, but one of the absolute worst ever brought to fruition.
These concerns notwithstanding, his critique of the Fed as it currently exists is emphatically on the money. Though he doesn’t support its abolition he does say, “In an ideal world, there would be no Fed, and I think the nation would be better off if the Fed had never been created.”
How we can save ourselves
Readers of his book don’t have to be swept up in the impending disaster. Unlike the crash of 2008 when investors flocked to the dollar as a safe haven, he believes the dollar and U.S. bonds will collapse before the U.S. economy goes under. He devotes a chapter to crisis investing based on the observation that since Americans have been living beyond their means, many others have been living beneath their means.
Peter Schiff has written a riveting guide on what to do about our snowballing social, financial, and economic problems. Inasmuch as he recommends freeing people from government, his solutions are far from pain-free and consequently will not be popular with the political class or their dependents. Well, it’s time they got over it. As Schiff writes in his introduction, it’s as if we’re headed down an icy hill with politicians in the driver’s seat accelerating toward the bottom.
His book is divided into two main sections. Part I addresses the problems, while part II, which is by far the lion’s share of his discussion, presents solutions. In a nutshell, the problem is government, and the solution is to take an ax to it - again and again. Since this view is currently unacceptable to policymakers and the public at large, we can only hope reality will win out before calamity hits.
The Real Crash is encyclopedic in its coverage and highly readable in its presentation. Is there a government agency that truly serves the interests of all Americans? He finds few. What about services people actually want, such as K-12 education: Could they be done better at the state or local levels? Or better still by the free market? In most cases the answer is a profound “Yes!” to both.
Living on Bubbles
Our problems stem from a love of bubbles and the flawed economic theory that blesses them.
During Alan Greenspan’s reign at the federal reserve we had a savings and loan bubble, followed by a tech bubble, followed by a housing bubble. Now with Ben Bernanke at the Fed, we have a government bubble, meaning the Fed is creating money that the banks are then lending to the Treasury to expand government. “If you keep replacing one bubble with another, you eventually run out of suds. The government bubble is the final bubble.”
When the dot-com and housing bubbles burst we at least had something to show for them - “a few good Internet companies and some pretty nice McMansions, [but] no such benefits will remain when the government bubble pops.”
The Fed, Schiff says, should let interest rates rise so people can start saving again. The Fed’s low rates discourage savings, which are
the key to economic growth, as it finances capital investment, which leads to job creation and increased output of goods and services. A society that does not save cannot grow. It can fake it for a while, living off foreign savings and a printing press, but such “growth” is unsustainable— as we are only now in the process of finding out.But for politicians and central bankers, rising interest rates are an abomination. The cost to service the national debt would go through the roof, while the economic contraction that would likely result would raise the deficit. The federal government would have to spend less, and many of the country’s biggest companies depend on government spending, through contracting, subsidies, or consumption.
But rising rates and the terrible pain it would cause is the good news; the bad news, if the Fed continues to hold rates low, is the economy will eventually go into hyperinflation. “Rising interest rates will be productive pain— like medicine,” he writes, “while hyperinflation will be destructive pain.” If we stay the course and pretend everything will somehow work out, we could be facing a crisis worse than the Great Depression.
Bernanke on the Great Depression
Chairman Bernanke, of course, is well-known as an “expert” on the Great Depression, and many people are betting the farm that he and his Keynesian staff have the skills to steer us back to sunny beaches and bikinis. Bernanke’s approach is to keep asset values from falling by any and all means. One of the reasons the depression of the 1930s became great, he believes, is because the Fed allowed the money supply to fall following the Crash. With less money in the economy, prices nosedived. People didn’t consume as much, consequently businesses didn’t profit as much, therefore employees got fired, and the economy headed south in a self-perpetuating spiral.
“Sustained deflation can be highly destructive to a modern economy and should be strongly resisted,” Bernanke said in a 2002 speech that inspired his nickname. And by deflation, he means “falling prices.”
Schiff explains what’s wrong with this analysis.
First, for 100 years prior to the 1929 Crash, bank deposits actually gained value each year. In other words, we had a century of deflation, that much-feared condition that Bernanke has vowed to avoid at all costs.
Second, from mid-1921 to mid-1929, the Fed increased the money supply by 55 percent, giving rise to a real estate and stock bubble. Most but not all economists missed the bubble and its inevitable consequences because rising productivity kept consumer prices fairly stable. Even as stock prices were falling only days before the Crash, Irving Fisher said stocks had reached a “permanently high plateau,” and he expected to see “the stock market a good deal higher than it is today within a few months.” In 1928, Ludwig von Mises had published a full critique of Fisher’s monetary theory, claiming that Fisher’s reliance on price indexes would bring about the Great Depression. Nonetheless, Fisher’s stable price theory carried the day, and when the sky fell the Fed, along with Hoover, “did something,” as Schiff explains:
Hoover’s Fed actually boosted the money supply by 10 percent in the two weeks following the 1929 crash. Repeatedly throughout Hoover’s term, the Fed created more money. But the money supply fell because people began hoarding cash, and banks stopped lending out their money.Also,
Deposits went down by 30 percent, but most of that was due to people pulling their money out.Did a falling money supply promote massive unemployment?
In other words, the money supply shrank despite the Fed’s interventions, not because of its inactions.
Not by itself. Hoover insisted on keeping wages high, and during his re-election bid in 1932 boasted that the wages of U.S. workers were “now the highest real wages in the world.” They probably were, and by not allowing wages to fall along with other prices, unemployment soared.
Had Hoover simply allowed the free market to function, the recovery would have been so strong that he likely would have been elected to a second term, and Teddy would have been the last Roosevelt to occupy the White House. Instead he handed the Keynesian baton to Franklin Delano Roosevelt . . .None of this, as we know, is even close to the standard view of the Depression. Instead, we’re told
that government needs to play a bigger role in battling downturns, and the Fed needs to pump in cash to jump-start the economy. This bad lesson stays with us today, and beginning in the early 1990s, this way of thinking started the cycle of bubbles that put us where we are now.
The one puzzling part of Peter Schiff’s masterpiece is his view that the federal reserve, as originally conceived, was a good idea. He describes the Fed as “reckless,” the “biggest culprit in discouraging savings,” and insists “we never should have trusted the Fed to respect its boundaries.” But he also says:
The original intention of the Fed was something I might have supported had I been around back then. In theory, it was an agent of stability that could also promote economic growth. . . .He argues that before 1913, banks were issuing their own currencies backed “by assets, such as gold, and by the banks’ loan portfolios.” If “you traveled to California, your bank note from Connecticut might not be honored by other merchants or the California banks.”
The Fed would increase the money supply as the economy expanded, and then reduce the money supply as the economy contracted. . . .
In theory the Fed was a good idea. It’s just that in practice it did not work, because politicians quickly abused it.
Thus, he concludes, it was natural “for bankers to hatch an idea of a “banks’ bank. Banks could deposit some of their assets— commercial paper or gold— with the Fed, and the Fed in return would issue its own bank notes to the individual bank.”
While this may sound plausible, questions arise as to (1) why the “banks’ bank” needed “guns and badges” (i.e., government cartelization) to make it work; (2) why loan portfolios or commercial paper can be assumed to be an acceptable substitute for gold coin; (3) why a central bank is needed to expand and contract the money supply - in other words, why assume the supply/demand relation of the free market fails when the good in question is commodity money; (4) why the historical record of central banks acting as an agent of stability and sustainable economic growth is short on examples; and (5) why did the Fed, at its creation, possess a massive inflationary structure if it was sold as a means to promote stability?
I believe central banking, by its nature, is a means of institutionalizing, centralizing, and cartelizing moral hazard. It is my view that the Fed was never a good idea, but one of the absolute worst ever brought to fruition.
These concerns notwithstanding, his critique of the Fed as it currently exists is emphatically on the money. Though he doesn’t support its abolition he does say, “In an ideal world, there would be no Fed, and I think the nation would be better off if the Fed had never been created.”
How we can save ourselves
Readers of his book don’t have to be swept up in the impending disaster. Unlike the crash of 2008 when investors flocked to the dollar as a safe haven, he believes the dollar and U.S. bonds will collapse before the U.S. economy goes under. He devotes a chapter to crisis investing based on the observation that since Americans have been living beyond their means, many others have been living beneath their means.
Elsewhere in the world there are more creditors than debtors, and there is pent-up demand and excess production. In the future, these economies will see a surge in demand, while ours will see demand fall. . . .He describes his investment strategy as
Bottom line: purchasing power is shifting. You should try to invest in companies that will benefit from this shift. These will primarily be foreign companies. Of course, many foreign companies sell to the United States. These aren’t the businesses I’m talking about.
a stool with three solid legs: (1) quality dividend-paying foreign stocks in the right sectors; (2) liquidity, and less volatile investments, such as cash and foreign bonds; and (3) gold and gold mining stocks.Of particular interest to this reader was his section on the poor man’s investment strategy. If consumer prices head for the moon the government will likely impose price controls, thereby creating shortages. Solution: buy in bulk now and stock up. One advantage is that
any returns are tax free. For example, if you buy a box of cornflakes today and eat it two years from now when the price of a new box is 40 percent higher, that’s a 40 percent tax-free return.His writing is full of fresh and sometimes bold insights on long-standing issues. Readers will find his discussions on drug prohibition, marriage, abortion, guns, health care, and prostitution especially engaging, I believe. His detailed historical and legal discussion of the income tax is the best I’ve ever read, nor does he pull punches in describing it:
It’s hard to imagine a tax more destructive of productivity, more destructive of entrepreneurship, more destructive of our lives, more difficult and costly to comply with, more subject to gaming, or more absurd in its logical consequences. Congress should immediately, fully, and permanently abolish the income tax, and the Internal Revenue Service (IRS) along with it.He would replace the tax with a revenue-raising tariff on imports.
Yes, tariffs suck. But they suck less than income tax. In fact, they might be preferable to a national sales tax.Conclusion
Peter Schiff has written a riveting guide on what to do about our snowballing social, financial, and economic problems. Inasmuch as he recommends freeing people from government, his solutions are far from pain-free and consequently will not be popular with the political class or their dependents. Well, it’s time they got over it. As Schiff writes in his introduction, it’s as if we’re headed down an icy hill with politicians in the driver’s seat accelerating toward the bottom.
We need a grown-up to grab the wheel and steer us into the ditch on the side of the road. That won’t be pretty, but it’s better to go into the ditch at 80 miles an hour than crash into a brick wall at the bottom of the hill at 120.
Peter Schiff: Damn the Torpedoes
By Peter Schiff
Last week in an interview on CBS Network News, Economist Mark Zandi, the chief economist for Moody’s, unwittingly revealed a central error of the global economic establishment. Zandi has made a career out of finding the middle ground between republican and democrat economic talking points. As a result of this skill, he has been rewarded with large quantities of airtime from media outlets that want to appear non-partisan, despite the fact that his supposedly neutral analysis often leaves listeners frustrated.
When asked about the recent deterioration in the global economy, Zandi said that “the worst possible scenario” at present would occur if Greece were to leave the Eurozone. He claimed that the economic gyrations and liquidations of bad debt that would result from such an exit would be sufficient to create a vicious cycle that could drag the global economy back into recession. As a result, he urged policy makers to take whatever steps necessary to maintain the current integrity of the 17 nation Eurozone.
Given what most economists now know, few would actively argue that Greece’s entrance into the Eurozone back in 2001 was a good idea. In fact most concede it was a terrible idea based on bad forecasting and outright fraud. There is little disagreement over the fact that Greece grossly misrepresented its financial position in order to gain initial entry into the monetary union. It is also widely agreed upon that in the ensuing decade Greece exploited its monetary advantages to borrow irresponsibly.
Much has been written about how the fundamental misfit between Greece’s economy and currency gave birth to a deeply flawed system that was destined to run off the rails. Most also agree that the countries like Greece and Germany are too economically and culturally disparate to exist under the same monetary umbrella. But despite all this, Zandi wants to maintain the status quo. In his opinion, it is so imperative to prevent the deflationary consequences of an economic restructuring that it is preferable to prop up a failed system, perhaps indefinitely, rather than allow a newer, healthier system to replace it. In the process, the moral hazard created not only assures that Greece will become an even greater burden on Europe, but so too will other nations whose leaders will be emboldened in their profligacy by the anticipation of similar help.
From Zandi’s perspective (and he is certainly in the majority on this point) the goal of economic policy is to keep GDP growing. It follows then that he will oppose large-scale debt liquidations which drag down GDP in the short term. But sometimes debt needs to be liquidated. Bad ideas need to be abandoned. Once economies stop throwing good money after bad, capital is freed up to flow into more economically viable purposes. But economists and politicians never look at the long term. Their job seems to be to manage the economy for the next election.
The same “damn the torpedoes” mentality dominates economic thinking with respect to the U.S. economy as well. Years of artificially low interest rates, and government subsidies that direct capital towards certain sectors and away from others, has created an economy with too little savings and production, and too much borrowing and consumption. The ultra-low interest rates currently supplied by the Fed serve to perpetuate this unsustainable artificial economy. Higher rates would work quickly to redirect capital to the more productive sectors. But high rates could bring deflation and liquidation, which few economists are prepared to risk.
We have too many shopping malls selling stuff, but not enough factories making stuff. We have too many kids in college studying liberal arts, and not enough in the workforce acquiring skills that will actually increase their productivity. Banks are loaning too much money to individuals to buy houses, and not enough money to entrepreneurs to buy equipment. We have too many tax-takers riding in the wagon, and not enough taxpayers pulling it. The list is long, but the solutions are short.
We need to let interest rates rise to market levels, and allow the economy to restructure without government interference. We need to stop beating a dead horse and hitch our wagon to an animal that can really pull. The process will be painful for many, but like ripping off a band-aid, the pain will be over relatively quickly. However, since a painful restructuring means recession, politicians resist the cure with every fiber of their beings. So instead of a genuine recovery, one that will provide productive jobs and rising living standards, we get a phony recovery that produces neither.
Preserving a broken system merely to avoid the pain necessary to fix it only makes the situation worse. Propping up sectors that should be contracting prevents resources from flowing to other sectors that should be expanding. eeping workers employed in nonproductive jobs prevents them from gaining productive employment elsewhere. Encouraging activity or behavior the market would otherwise punish discourages alternatives that it would otherwise reward.
Unfortunately, leaders on both sides of the Atlantic put politics above economics, and economists like Mark Zandi provide the cover they need to get away with it.
Source: marketplayground.com
Last week in an interview on CBS Network News, Economist Mark Zandi, the chief economist for Moody’s, unwittingly revealed a central error of the global economic establishment. Zandi has made a career out of finding the middle ground between republican and democrat economic talking points. As a result of this skill, he has been rewarded with large quantities of airtime from media outlets that want to appear non-partisan, despite the fact that his supposedly neutral analysis often leaves listeners frustrated.
When asked about the recent deterioration in the global economy, Zandi said that “the worst possible scenario” at present would occur if Greece were to leave the Eurozone. He claimed that the economic gyrations and liquidations of bad debt that would result from such an exit would be sufficient to create a vicious cycle that could drag the global economy back into recession. As a result, he urged policy makers to take whatever steps necessary to maintain the current integrity of the 17 nation Eurozone.
Given what most economists now know, few would actively argue that Greece’s entrance into the Eurozone back in 2001 was a good idea. In fact most concede it was a terrible idea based on bad forecasting and outright fraud. There is little disagreement over the fact that Greece grossly misrepresented its financial position in order to gain initial entry into the monetary union. It is also widely agreed upon that in the ensuing decade Greece exploited its monetary advantages to borrow irresponsibly.
Much has been written about how the fundamental misfit between Greece’s economy and currency gave birth to a deeply flawed system that was destined to run off the rails. Most also agree that the countries like Greece and Germany are too economically and culturally disparate to exist under the same monetary umbrella. But despite all this, Zandi wants to maintain the status quo. In his opinion, it is so imperative to prevent the deflationary consequences of an economic restructuring that it is preferable to prop up a failed system, perhaps indefinitely, rather than allow a newer, healthier system to replace it. In the process, the moral hazard created not only assures that Greece will become an even greater burden on Europe, but so too will other nations whose leaders will be emboldened in their profligacy by the anticipation of similar help.
From Zandi’s perspective (and he is certainly in the majority on this point) the goal of economic policy is to keep GDP growing. It follows then that he will oppose large-scale debt liquidations which drag down GDP in the short term. But sometimes debt needs to be liquidated. Bad ideas need to be abandoned. Once economies stop throwing good money after bad, capital is freed up to flow into more economically viable purposes. But economists and politicians never look at the long term. Their job seems to be to manage the economy for the next election.
The same “damn the torpedoes” mentality dominates economic thinking with respect to the U.S. economy as well. Years of artificially low interest rates, and government subsidies that direct capital towards certain sectors and away from others, has created an economy with too little savings and production, and too much borrowing and consumption. The ultra-low interest rates currently supplied by the Fed serve to perpetuate this unsustainable artificial economy. Higher rates would work quickly to redirect capital to the more productive sectors. But high rates could bring deflation and liquidation, which few economists are prepared to risk.
We have too many shopping malls selling stuff, but not enough factories making stuff. We have too many kids in college studying liberal arts, and not enough in the workforce acquiring skills that will actually increase their productivity. Banks are loaning too much money to individuals to buy houses, and not enough money to entrepreneurs to buy equipment. We have too many tax-takers riding in the wagon, and not enough taxpayers pulling it. The list is long, but the solutions are short.
We need to let interest rates rise to market levels, and allow the economy to restructure without government interference. We need to stop beating a dead horse and hitch our wagon to an animal that can really pull. The process will be painful for many, but like ripping off a band-aid, the pain will be over relatively quickly. However, since a painful restructuring means recession, politicians resist the cure with every fiber of their beings. So instead of a genuine recovery, one that will provide productive jobs and rising living standards, we get a phony recovery that produces neither.
Preserving a broken system merely to avoid the pain necessary to fix it only makes the situation worse. Propping up sectors that should be contracting prevents resources from flowing to other sectors that should be expanding. eeping workers employed in nonproductive jobs prevents them from gaining productive employment elsewhere. Encouraging activity or behavior the market would otherwise punish discourages alternatives that it would otherwise reward.
Unfortunately, leaders on both sides of the Atlantic put politics above economics, and economists like Mark Zandi provide the cover they need to get away with it.
Source: marketplayground.com
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