Economic Fault Lines Emerge

For a few fleeting, horrifying moments this past week, the fault lines that underlie the global economic crisis erupted into plain view. With deft and quick effort leaders in Washington, Europe and Asia papered over the fissures and fears largely subsided. But the shock of plain truths which resulted in violent currency movements are the latest reminder that the 21st century economic order will bear little resemblance to the world we now know.

The tremors began in Beijing, where a essay from the governor of the People's Bank of China seemed to favor the creation of an IMF currency to replace the U.S. dollar as the world's reserve. In Europe, the rotating president of the European Union, outgoing Czech Prime Minister Mirek Topolanek, characterized America's plan to combat the widening global recession as the "road to hell." At same time, British Member of the European Parliament Daniel Hannan made headlines the world over with his stinging rebuke of the inflationary and debt-focused policies of the current UK government.

As a result of these clearly voiced frustrations, the U.S. dollar suffered a drubbing. However, Treasury secretary Geithner and his ministerial counterparts in Berlin, Paris and London did their best to convince everyone that the world is pulling together as one to combat the economic crisis. The charm offensive was effective in restoring calm.

Given the size and scope of the remedies that the Obama Administration is cajoling the world to adopt, it is likely that the unease will grow until many countries emerge in open revolt to America's plans.

President Obama and the majority of our leadership on both sides of the aisle are confident that the right mix of monetary and fiscal policy can restart the spending party that defined America for a generation. And as the bleary-eyed revelers wisely reach for a cup of black coffee or stumble into a rehab center, Obama is pouring grain alcohol into the punch bowl hoping to lure the walking zombies back onto the dance floor. Europe and Asia fully understand that Obama will ask them to lend the booze.

Washington is telling us that our problems result from a lack of consumer spending. Therefore, the solution is for government spending to pick up the slack. However, if Americans are too broke to spend, then how can our government spend for us? The only money they have is taken from us through taxation. To postpone immediate tax hikes (adding interest for good measure), Washington plans to borrow more from abroad. However, if our foreign creditors refuse to pony up, much of the money will simply be printed instead.

Printing money is merely taxation in another form. Rather than robbing citizens of their money, government robs their money of its purchasing power. Many people assume that if government provides the funds we can spend our way back to prosperity. However, it's not money we lack but production. If the government simply prints money and doles it out, we will not be able to buy more stuff; we will simply pay higher prices. The only way to buy more is to produce more. It is production that creates purchasing power, not the printing press!

Our current predicament resulted in part from our efforts to maintain consumer spending at unsustainable levels, primarily by the reckless extension of consumer credit. Pushing up consumer credit to levels not supported by market realities required government subsidies and guarantees. In addition, Wall Street pitched in with securitization and credit default swaps, which created a false sense of confidence among our creditors that high risk consumer loans could actually be repaid. However, now that all those gimmicks have blown up, the entire farce has been exposed. There is simply no way to sustain an economy based on consumer credit.

The Administration argues that more debt will restore growth which will then allow the repayment of borrowed money. First, our government has never, and will never, repay anything. Second, the assumption that additional borrowing and spending will restore growth is flawed. In fact, more consumer debt and government spending will undermine our economy and restrain growth.

To solve our problems we must first come to terms with their source. That is what the voices from abroad are telling us. We borrowed and spent ourselves to the brink of bankruptcy, and now we must save and produce ourselves back to prosperity.

Of course, this simple solution is rejected by Keynesian economists who insist that we must keep spending. The "paradox of thrift," as they call it, holds that if we stop spending the recession will worsen. While this is true, it is hardly a paradox. As they say in the fitness game, "no pain, no gain." No one said this was going to be easy, but the only way to rebuild a viable economy is to let the phony one collapse. If we follow the Keynesians, the fault lines will continue to widen until our wealth, our lifestyle, our very ability to prosper is swallowed up. The calls from abroad will only get louder until we face this ugly truth.

Comments

[Steven Hansen:]

if the answer to a debt crisis is more debt, then the answer to a flood is to open the gates of a dam to increase the water flow.

Mar 29 04:54 AM

[ArkansasAngie:]

The compensation plans which encourage risky behavior for short term gain are fully entrenched in Washington politics.

Mar 29 07:51 AM

[prudentinve...:]

Thank you for a sensible article.

We need more production, as consumption cannot exceed production except for brief periods. Within such periods, the deficit between production and consumption can be imported from willing foreigners against IOU's. Eventually, they will wish to redeem these IOU's in kind, meaning that we would need to produce more than we consume and export the surplus. If it becomes obvious to our trading partners that their dollar IOU's are debased, and that we have no intention of paying them back in kind, they will cut off our free lunch.

It is frustratingly evident that our policymakers seem oblivious of such basic facts, and expect that restoring over-consumption offers a viable substitute to increasing the production of products and services that we can export to balance the global economic system.

Mar 29 10:03 AM

[O-B-WON:]

This past generation has had it too easy.... It was the me and now generation... all about instant gratification.. and unfortunately I see it in my own kids and grandkids..

Overweight..?? take a pill...

Stressed out....? take a pill

Don't want to work..?? go on food stamps..

Come in last place at the little league peewee baseball tournament...?? you still get a trophy

So now, we want to take the easy painless way out of this mess.... aint gonna happen

Peter hit the nail on the head.... "no pain ... no gain"

All bets are off.... it's gonna be like nothing anybody has ever seen...

Prepare accordingly...

Mar 29 10:50 AM

[Ergo:]

I see the issue here: "We borrowed and spent ourselves to the brink of bankruptcy, and now we must save and produce ourselves back to prosperity."

I am concerned that gov't policies treat this "recession" as a typical downturn that quick fix injections can smooth out. Unfortunately, there is no strategy for making us more productive as a country. Although we've done a lot to prop up some existing businesses, many of those are still not viable (i.e., Chrysler), and we've done little to encourage new jobs or manufacturing.

In fact, it seems we are doing the opposite. For example, broad unionization and expensive CO2 restrictions will not increase America's productivity. And we all know taxes will increase. In this environment, why wouldn't industries move oversees if they can? Thus, even if the stimulus does have Keynesian effects, the more fundamental problem is clearly unaddressed.

Mar 29 10:52 AM

[DHS:]

Peter Schiff concluded, "and now we must save and produce ourselves back to prosperity." Right. And I've got a bridge in NY I can sell you.

Mar 29 11:54 AM

[polo:]

Saving makes sense in long run but does not help to deal with crisis in short run. It is in crisis mode, printing money to buy MBS is one tool Feb could use. Fed can always issue bonds to get money back. It is logic to me to have some inflation and debase currency if you borrowed too much.

Mar 29 11:57 AM

[morph366:]

This is a wonderfully evocative sentence from your article:
"Obama is pouring grain alcohol into the punch bowl hoping to lure the walking zombies back onto the dance floor."
To slightly extend the analogy to musical chairs we would all be wise to make sure that we are not holding lots of paper assets when the music stops.

Mar 29 12:09 PM

[376602:]

A fine commentary by the author once again.

A timely metaphor could be the 1930's dance marathons in the film classic "They shoot horses, don't they?".

Mar 29 12:33 PM

[Conan the B...:]

DHS: taking a line out of context, treating it as the summation, is easy. Apparently someone sold you that bridge.

Summations aren't found in the middle of an article.

The Last paragraph plainly states: "...but the only way to rebuild a viable economy is to let the phony one collapse."

I totally agree that what was must not be repeated.

Mar 29 12:50 PM

[InvestBaboo:]

While production lies elsewhere the leaders of the free world are American companies and enterprises. It is natural in a "GLOBAL" economy that the arms, legs and perhaps a big portion of the body may lie elsewhere in the world while the brain lies in America. Schiff asserts that the whole body must lie in a given country and then (and then only) the overall production of that body is attributed to that country. This is wrong.

What needs to happen to the American workforce is that they need to climb to be the brains of the operation and not the producers at the lower level. Many in the workforce have done this and as a result are thriving in their profession. While I think that in the short run there will continue to be suffering and wage degradation in the long run Americans will figure out exactly how to play their role in the new global economy.

America is the only country in the world that has the best possible political system to assure future growth. India and China have incredible internal social and political issues and Europe is a divided continent. China will not rule the new economy -- America will.

All the soapbox pontification aside one needs to look at the charts and follow the famous adage "The trend is your friend till the bend at the end". At the present there are daily and weekly buy signals on a wide spectrum of companies in a wide spectrum of industries. Peter Schiff's doom and gloom predictions aside it appears that world investors are voting for America with their wallets. Do not miss the beginnings of what could be one of the greatest bull market runs in history. Rarely if ever do you get a chance to buy name brand American global behemoths at incredible bargains. If you invest today you will be a very happy camper in 5 to 10 years.

I have traveled all over the world and I can assure you that no country has what it takes to be the world leader like America. The throne belongs to America and will stay with America for the next several decades.

Mar 29 01:26 PM

[Tony Daltorio:]

Gee, that's funny I travelled all over the world too and I saw that the US is the laughing stock of the globe.

Your point about our political system is correct is you're talking about the America of 50,100 or 200 years ago. Now the political system caters to the people who want 'it' and they want 'it' right now without having to break a sweat.

Future economic leadership will belong to the people who are willing to work and save. That is not America.


On Mar 29 01:26 PM InvestBaboo wrote:

> While production lies elsewhere the leaders of the free world are
> American companies and enterprises. It is natural in a "GLOBAL" economy
> that the arms, legs and perhaps a big portion of the body may lie
> elsewhere in the world while the brain lies in America. Schiff asserts
> that the whole body must lie in a given country and then (and then
> only) the overall production of that body is attributed to that country.
> This is wrong.
>
> What needs to happen to the American workforce is that they need
> to climb to be the brains of the operation and not the producers
> at the lower level. Many in the workforce have done this and as a
> result are thriving in their profession. While I think that in the
> short run there will continue to be suffering and wage degradation
> in the long run Americans will figure out exactly how to play their
> role in the new global economy.
>
> America is the only country in the world that has the best possible
> political system to assure future growth. India and China have incredible
> internal social and political issues and Europe is a divided continent.
> China will not rule the new economy -- America will.
>
> All the soapbox pontification aside one needs to look at the charts
> and follow the famous adage "The trend is your friend till the bend
> at the end". At the present there are daily and weekly buy signals
> on a wide spectrum of companies in a wide spectrum of industries.
> Peter Schiff's doom and gloom predictions aside it appears that world
> investors are voting for America with their wallets. Do not miss
> the beginnings of what could be one of the greatest bull market runs
> in history. Rarely if ever do you get a chance to buy name brand
> American global behemoths at incredible bargains. If you invest today
> you will be a very happy camper in 5 to 10 years.
>
> I have traveled all over the world and I can assure you that no country
> has what it takes to be the world leader like America. The throne
> belongs to America and will stay with America for the next several
> decades.

Mar 29 01:45 PM

[De Graaf:]

Love the quotes Peter. Article is as clear as always. Keep em coming.

Mar 29 02:53 PM

[any mouse:]

"...but the only way to rebuild a viable economy is to let the phony one collapse."

and what's that gonna look like ?? anarchy ??

Mar 29 03:55 PM

[inexperienced:]

DHS coment Mar.29 11:54 AM
Down 10 to 2 at this moment.The truth is to painful.

Mar 29 04:22 PM

[Mark Anthony:]

Gerald Celente predicts Economic Amargeddon very soon, and that "the only thing that would stop this is a ground breaking new source of alternative energy, something big, something ground breaking, something along the lines of fire, or the wheel."

goldismoney.info/forum...

What is this "something BIG" that Celente had in mind when said that. I think I know precisedly what he meant. It is not a coincidence that such a break through had just been announced by the American Chemical Society. Read this:
stockology.blogspot.co...

Let's hope things turn out not as bad as we thought.

Mar 29 04:22 PM

[conceptwizard:]

Great Article! This is a global financial meltdown and can only be fixed on a gobal scale. We have a global financial system without global regulation. The countries off the world are not on board with what the US administration is doing and for good reason, it does not solve these reglation issues or fix the system. A G20 Summit should have happened and all countries on board and working together before we bet the farm. It is questionable if these US policies will work, even the Fed & Treasuries admit this.The only issue everybody can agree on is that it will result in unsustainable debt. Now what happens in Vegas when you are on your last buck you sold your house, car and your retirement and roll the dice & lose? It a lot to risk on a maybe, everyones chidren, chlidren's futures in indebtness and this Great Scheme does not work.WHAT THEN! it seems that the policy makers went ALL IN on two pair! I didn't hear and exit strategy or plan "B" yet. I'll roll the dice betting on inflation in the 3rd power.

Mar 29 08:50 PM

[fireball:]

mr. schiff
thanx again for your articles. the stark reality stings.
i am all for a backed currency. i do not know how we could ever hope to set a metal relationship to the ridiculous amounts of federal reserve notes. i doubt anyone has a realistic guess. there are billions in drug money hidden in the world and that is only one facet of criminal monies.
perhaps the frn should serve as a fiat international currency with say united states notes (metal backed) for use within u.s. borders to protect the wealth of u.s. citizens. we have the tech to do this and to enforce it. i guess it would be a stretch to have the public servants and statesmen to choose such a course. if we made it illegal to use outside our borders this would prevent other nations from using our currency against us.
this is a rough idea that came to me about a week ago. posters is it stupid? mr.schiff?

Mar 29 10:17 PM

[@TexasER:]

This talk of calls from abroad about fiscal responsibility is misguided. Everyone (and all countries) are looking after their own self interests first.

Everyone wants to weaken their currency. If the dollar weakens, that doesn't help other countries. This rhetoric is nothing more than posturing prior to the great trade wars to come.

If Peter's dire predictions come true, then the trade wars will become shooting wars.

An then the US will get all of their friends back. Self interests, you see.

Mar 29 10:28 PM

[Raution:]

I could not agree more with Peter, but I am not sure that all the issues have a black and white solutions. So is this case. I think the most academically feasible solution is not the the right solution all the time. This issue more than just more savings which is the bottom line of this article. I would agree that US needs to boots its saving rate but it needs to ensure that the consumptions are not slowed down dramatically. A good mix of savings and consumption will help us bail out of this situation.

Mar 30 03:28 AM

[capitalisth...:]

Divest yourself of dollars and buy commodities while you can.

Mar 30 05:54 AM

[Mark Bern:]

Sorry to say, I don't think the Government even had two pair. They are still trying to bluff their way out of this mess and I expect that when all is said and done, the economy (and marktets) will call their bluff. When the cards are lain down, we'll see that they were all puffed up about a pair of deuces!

On Mar 29 10:17 PM fireball wrote:

> mr. schiff
> thanx again for your articles. the stark reality stings.
> i am all for a backed currency. i do not know how we could ever hope
> to set a metal relationship to the ridiculous amounts of federal
> reserve notes. i doubt anyone has a realistic guess. there are billions
> in drug money hidden in the world and that is only one facet of criminal
> monies.
> perhaps the frn should serve as a fiat international currency with
> say united states notes (metal backed) for use within u.s. borders
> to protect the wealth of u.s. citizens. we have the tech to do this
> and to enforce it. i guess it would be a stretch to have the public
> servants and statesmen to choose such a course. if we made it illegal
> to use outside our borders this would prevent other nations from
> using our currency against us.
> this is a rough idea that came to me about a week ago. posters is
> it stupid? mr.schiff?

Mar 30 07:07 AM

[Hot Richard:]

"the 21st century economic order will bear little resemblance to the world we now know."

"our government has never, and will never, repay anything."

Nicely stated. As for the "no pain, no gain", eventually government will have to reduce spending and possibly increase everyone's tax burden.

Just joking!! No way a politician will say that. They'll tax and villify the "rich" more while increasing government spending. 70% here we come.

Just like more debt as the answer to a debt crisis, the answer will be more government to bad government actions.

When will people start critically looking at their politicians? Unless you've been voting for Ron Paul for 20 years, there's not a single member of Congress that has fought for a balanced budget. C'mon. Wake up.

Mar 30 10:06 AM

[Hot Richard:]

Capitalisthero is right.

Divest yourself of dollars like he divests himself of his shirt.

Invest in commodities like he invests in chest waxing.

Mar 30 10:16 AM

[schazd:]

All but a temporary fix. If this were a poker game, the Chinese, the EU, and other international Central bankers have sent more than strong language( table talk ) that they dont like our polcies and have begun to tip their hands.
Signals like these have resulted in shocks to the currency markets that the central banks can smooth over, albeit temporary. Other savvy players like Bill Gross and the Bond Managers at PIMCO have indicated US Treasuries are over valued and are heading for the exits.
I believe Peter Schiff is right...I hope he's wrong.

Mar 30 11:07 AM

[Attitude_Check:]

Your right - we must BORROW and CONSUME our way to prosperity!!!!!!!

I've got the exclusive right to sell you land on MARS, be the first on your block to own a piece of the Red Planet. Real Estate may be tanking on earth, but the bubble is just starting on MARS - get in early and make a $B.


On Mar 29 11:54 AM DHS wrote:

> Peter Schiff concluded, "and now we must save and produce ourselves
> back to prosperity." Right. And I've got a bridge in NY I can sell
> you.

Mar 30 12:21 PM

[Hot Richard:]

Attitude Check,
You might have the perfect solution. Americans should start buying property on Mars from the US Government. They could probably raise $5 Trillion as each acre could be priced at US$50,000. And, the US Government can loan people the money if they don't have $50,000. If this doesn't work, raise the price!

Because as evidence by a whole lot of economists (not Mr. Schiff), spending and credit is all that matters. Actual production (or land you can actually do something with) means nothing.

This is one bizzaro time to be alive.

Mar 30 02:02 PM

[FE812:]

Spending and credit are irrelevant if there is nothing to be bought. Without producers not only can the economy not grow, we can't survive.

(i.e. View people who save as producers. Allow the economy to correct, people will start saving and the credit markets will start back up on their own. As bank capital increases credit becomes cheaper and consumers can now borrow / spend. Producers had to start the process and it's the same with any good.)

Mar 30 02:54 PM

[tinman:]

To all who say "get gov't out of the way and the market will eventually correct itself": Sure, the do-nothing approach will eventually result in equilibrium but that is cold comfort to millions who need to eat every day in the meantime. If you haven't lived paycheck to paycheck, shut up and let government do its job.

Mar 31 01:26 PM

[Carlos Lam:]

On Mar 31 01:26 PM tinman wrote:

> To all who say "get gov't out of the way and the market will eventually
> correct itself": Sure, the do-nothing approach will eventually
> result in equilibrium but that is cold comfort to millions who need
> to eat every day in the meantime. If you haven't lived paycheck
> to paycheck, shut up and let government do its job.

The statist approach you seem to espouse only leads to greater problems. Let's lay out the greater problems that we will be facing:

(1) Federal debt of over $11 trillion (that doesn't include the unfunded liabilities for Social Security & Medicare), which amounts to a little over 85% of GDP. This debt will result in either higher taxes, severe decreases in federal spending, or drastic debasement of the currency. Whichever method of dealing with the debt that is chosen will result in hardship for us and our children. I particularly do not want my boys saddled with such debt. We don't have the means to pay off this debt the way that we did in the post-WWII years.

(2) The Federal Reserve has added A LOT of liquidity to the system. We don't know exactly how much. The problem with all of this money creation is that it devalues the dollar. With more "dollars" sloshing around, each individual dollar becomes worth less. More individual dollars are then required to buy the same item. The gasoline that cost $1.39 a few months ago now costs $2.00 or so. The amount of liquidity added will most certainly cause problems.

(3) The U.S. Constitution does not state that it is the federal government's "job" to "help" an economy recover from boom/bust cycles. Indeed, the federal government was to be a government of limited powers, though it began amassing more power during and after the Civil War. Simply put, the signatories to the "contract" that is the Constitution did not envision "helping" as the federal government's job.

(4) Total household debt is just less than 100% of GDP. People have to work off this debt until they achieve a more comfortable and manageable debt level. The government is attempting to "do its job" by getting families to take on more debt in order to spend. Why should families indenture themselves in order to buy more consumer items that they do not need? Americans are trying to do the right thing by deleveraging and saving; the government, like a heroin pusher, is trying to get them to take up the syringe that is consumer credit.

Mar 31 04:07 PM

[kertch:]

No not anarchy, but it's not going to be one where consumer spending fueled by debt accounts for over 70% of GDP.


On Mar 29 03:55 PM User 37951 wrote:

> "...but the only way to rebuild a viable economy is to let the phony
> one collapse."
>
> and what's that gonna look like ?? anarchy ??

Mar 31 04:24 PM

[easyrob:]

its going to get worse before it gets better, commodity stocks, metals, and food stocks are good ideas. But I think that human ingenuity will also put negative feedback into the crisis and so i am holding off on buying bullets, for the moment.

Apr 01 09:41 AM

[Chris Lau:]

As a solution, does coming to terms with their (the U.S.) source including spliting insovent companies between "good" assets and "bad"? Examples: financial banks who are insolvent, GM. This might be the only way to use the capital market system to assign a value to assets that are otherwise unmarketable.

Apr 01 01:05 PM

[Promod Radh...:]

Nice article..i agree we need to make a long-term move towards a balanced fiscal strategy and work our way up the savings ladder. However, the current crisis is unforeseen and of enormous proportion - and hence the need for seemingly counter-logical interim steps to pull us out of the rut before we can work on a longer term strategy. As long as the current administration does have a medium-to-long term strategy of balancing the budget, we can very well live with an interim fiscal deficit brunt.

Apr 01 07:33 PM

[Northstar10000:]

There is no way short term to solve this short of doing nothing and take the Medication. Sorry all we are doing is spending our way to oblivion. Might just as well save the money. The markets are bigger than the political classes. They will crush them, governments will be the next to fail. There are north of 90 trillion worth of toxic financial time bombs set to go off. Still think governments can solve it.
Norrth

Apr 02 06:05 PM

[Amouna:]

I am not from America and although I love that country for its beautiful scenery and the true kindness of its people, I came to hate the mentality of how things were done.

No wonder Prozac was a success among twenty somethings back in the nineties!!


On Mar 29 10:50 AM O-B-WON wrote:

> This past generation has had it too easy.... It was the me and now
> generation... all about instant gratification.. and unfortunately
> I see it in my own kids and grandkids..
>
> Overweight..?? take a pill...
>
> Stressed out....? take a pill
>
> Don't want to work..?? go on food stamps..
>
> Come in last place at the little league peewee baseball tournament...??
> you still get a trophy
>
> So now, we want to take the easy painless way out of this mess....
> aint gonna happen
>
> Peter hit the nail on the head.... "no pain ... no gain"
>
> All bets are off.... it's gonna be like nothing anybody has ever
> seen...
>
> Prepare accordingly...
>

Apr 03 11:13 AM

[Robert Nabloid:]

Lots of people seen this coming. Have you not been reading any economist that follows the Austrian school of thought? Have you not been listening to the Mises Institute? Or Ron Paul, Peter Schiff, Gerald Celente, and hundreds of others economists (and even the old US Comptroller General, David Walker) that have been saying this was going to happen for years? I even seen it coming and I'm no expert. It didn't take a genius to see it. But on CNBC they continually say "NO one saw it coming" when the truth is "they didn't see it coming" and anyone that didn't follow their exact views was never allowed on the show or given serious thought (some were even laughed off).

The problem is that the Obama administration has NO mid to long term plan to balance the budget. They increased everything in the budget including military ( and they increased the military budget by $75.5B - Obama the warmongerer (or is it peacemaker when he does it?)). Their idea of a balanced budget is only $500B in deficits in four years. Wow. Someone needs to do some math and realize $500B in deficit is still losing MORE THAN a BILLION A DAY. We all used to think Bill Gates was rich with ~$60 B. Now we know how little $60 B truly is in the grand scheme of things.

You can't increase social benefits and balance the budget and so I actually think you must be on heroin to believe Obama will balance the budget or has any intention of doing so. He preaches about fiscal responsibility in Washington and says he will change that - then he goes and makes the biggest spending bill in the history of mankind - a bill with more than 1,000 pages, and gives them 1 HOUR to read it and says they don't have time to read it all - they must pass it immediately. Then, after they pass it without knowing what is in the fine print of those 1,000+ pages, he goes on a weekend vacation before even signing it into law... We know they were dealt a bad hand, but they sure aren't making it any better for themselves by increasing government size and promising the world to everyone. And listening to Obama preach about fiscal responsibility is like listening to a gambler speak about financial planning. It is laughable at best, and the only reason I'm laughing is because it would hurt too much to look at this situation in any other way.

Do you honestly think Obama will lay off all those new government workers he and Bush have been hiring? DO you believe he will decrease the social benefits as the population increasingly asks for more while the boomers begin retirement with just 201k's (if they are lucky) when they used to have 401k's? Obama promised social benefits, he didn't promise to cut them to balance the budget. You must be one of those people that think Obama can work miracles like increase ALL spending dramatically and balance the budget at the same time...

Besides, it isn't us that must live with this deficit. It is our children. It is them that will be taxed in the future to pay interest on the money we spend today. Their long term planning is to let the kids pay for it.

You obviously follow the Keynesian school of thought when it comes to dealing with economics and that's why you were blind to see this mess coming and why you're foolish for wanting it to continue with more debt while we go into a period where the most productive segment of the population (the boomer's) begin to retire and stop producing productively and become a drain on the entire system. We don't need more debt going into the boomer retirement cycle... that will only hurt worse in the long run.

On Apr 01 07:33 PM Promod Radhakrishnan wrote:

> Nice article..i agree we need to make a long-term move towards a
> balanced fiscal strategy and work our way up the savings ladder.
> However, the current crisis is unforeseen and of enormous proportion
> - and hence the need for seemingly counter-logical interim steps
> to pull us out of the rut before we can work on a longer term strategy.
> As long as the current administration does have a medium-to-long
> term strategy of balancing the budget, we can very well live with
> an interim fiscal deficit brunt.

Apr 03 03:27 PM

[James Goldman:]

The problem is not the incurring of additional debt, but the plans for how the proceeds from bonds that the govertnment is going to sell are going to be used. With interest rates as low as they are, the government should be selling as many bonds as people are willing to buy. What if it took the proceeds from the bonds and used them to provide mortgage financing (as opposed to guarantees of mortgage financing, where the government as all of the downside and very little of the upside). Not only would this tend to stabilitize the housing market, but the "profits" (the different between the amount paid by the gov't on the bonds and the amount paid by the borrowers on the mortgage loans) could be used to pay down the national debt. The bottom line is that the problem is not that the government is incurring more debt but that it is wasting the proceeds by using them in non-productive or even counterproductive ways.

Apr 03 08:48 PM

[dspg:]

Actually, who has much confidence in any government these days. Both Dems and Repl's have mismanaged the economy for the past 20 years; they should have had more economic discipline and addressed the future (and not very distant) unfunded liabilities such as SS, Medicare, private pensions. It is difficult to believe that they will change their stripes now.

Apr 04 12:09 PM

[Plan B Econ...:]

I wouldn't say the world is trying to borrow/spend its way out of this mess...I'd say it is trying to inflate its way out.

Inflation and bankruptcies are the only two solutions to a debt deflation crisis. And we will see both.

Check out the out of control Debt to GDP ratio:
www.planbeconomics.com.../

Apr 04 01:37 PM

[carey_jim:]

Peter Schiff's observations underline one of my most ironic Seeking Alpha mantras and it is that words and rhetoric don't effect the course of events except in one very important way: As mechanisms for controlling and engineering human behavior.

But as a free people, I think we Americans should continue to turn our backs on ideologies of centralized, social planning and keep our eye on the world of facts.

In the long run, it's the laws of economics, politics, history, psychology, sociology, technological progress, climatology, plagues, .... and not human verbal inventions and fantasies which determine the course of human history.

It is a sad and ironic fact that propaganda and ideologies, including religions, have caused more human disasters than the laws of nature itself, and that is why we find it so tempting to use advertising, propaganda and other forms of ideological rhetoric to protect ourselves from them. (Fight fire with fire.)

But this argument has been going on since the time of Socrates and shows no signs of ending soon.

en.wikipedia.org/wiki/...
www.iep.utm.edu/p/prot...
en.wikipedia.org/wiki/...

Sadly, some people believe that reason has been dethroned even in American universities:

www.google.com/books?i...
seattletimes.nwsource....
www.depressedmetabolis.../

Apr 04 02:22 PM

[MrZack888:]

Ironic enough, Peter Schiff himself was on food stamps while lazying on a beach in California some twenty years ago.

On Mar 29 10:50 AM O-B-WON wrote:

> This past generation has had it too easy.... It was the me and now
> generation... all about instant gratification.. and unfortunately
> I see it in my own kids and grandkids..
>
> Overweight..?? take a pill...
>
> Stressed out....? take a pill
>
> Don't want to work..?? go on food stamps..
>
> Come in last place at the little league peewee baseball tournament...??
> you still get a trophy
>
> So now, we want to take the easy painless way out of this mess....
> aint gonna happen
>
> Peter hit the nail on the head.... "no pain ... no gain"
>
> All bets are off.... it's gonna be like nothing anybody has ever
> seen...
>
> Prepare accordingly...
>

May 30 04:45 PM

[KIT:]

If you move to commodities get out of everything else, the inflation caused by this move damages all other investments.


On Mar 30 05:54 AM capitalisthero.com wrote:

> Divest yourself of dollars and buy commodities while you can.

Jun 06 10:29 PM