 The Fault Lines Emerge
Peter Schiff
Mar 28, 2009
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.
###
|
Click here
to buy Peter Schiff's best-selling, latest book, "How
an Economy Grows and Why It Crashes."
For a more in depth analysis of our financial problems and the
inherent dangers they pose for the US economy and US dollar,
you need to read Peter Schiff's 2008 bestseller "The
Little Book of Bull Moves in Bear Markets" [buy
here] And "Crash Proof 2.0: How to Profit from the
Economic Collapse" [buy
here]
For a look back at how Peter
Schiff predicted the current crisis, read his 2007 bestseller
"Crash Proof: How to Profit from the Coming Economic
Collapse" [buy
here]
More importantly, don't wait
for reality to set in. Protect your wealth and preserve your
purchasing power before it's too late. Discover the best way to buy gold at
www.goldyoucanfold.com, and subscribe to
our free, on-line investment
newsletter.
|
Mar 27, 2009
Peter Schiff
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: pschiff@europac.net
website: www.europac.net
Archives
 Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange
County Register.
Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in
finance and accounting from U.C. Berkley in 1987. A financial
professional for seventeen years he joined Euro Pacific
in 1996 and has served as its President since January 2000. An
expert on money, economic theory, and international investing,
he is a highly recommended broker by many of the nation's financial
newsletters and advisory services.
321gold Ltd
|
