End Game
Peter Schiff
Jun 15, 2011
Economic data over the past weeks, punctuated by last week's dismal employment reports, confirm the diminishing impact of the stimulus efforts orchestrated by the Obama Administration and the Federal Reserve. In what must be a huge disappointment to Keynesian enthusiasts, the record doses of both monetary and fiscal narcotics did not produce the desired results. In fact, the size and scope of the "recovery" of the past two years was weaker than would have been expected in a typical business cycle recovery without any stimulus whatsoever. Indeed our current recovery is the weakest on record, despite the biggest jolt of government stimulus ever administered.
But despite the gathering gloom Austan Goolsbee, the Chairman of the President's Council of Economic Advisors, argued over the weekend that the economy is on the right track and that the recent salvo of horrific economic reports were not significant. The poor numbers, he said, resulted from external factors like the Japanese earthquake and the downgrade of European sovereign debt. I don't know if he really expects anyone to buy his story, but admitting you have a problem is the first step toward recovery.
In a sign that Mr. Goolsbee may have been getting increasingly uncomfortable with his job of economic propagandist, he abruptly resigned this week. He will be returning to academia where I'm sure he is hoping to avoid blame for the coming economic train wreck.
Although I have made these comparisons before, the parallel between drug addiction and the reliance on economic stimulus is just too strong to ignore. And as with drug addition, an economy builds up a tolerance. Each time the government successively stimulates with printed money or deficit spending, ever larger doses are needed to achieve the same result. Lest we forget, coming into the Crash of 2008, the economy had been on the receiving end of years of over stimulus. President Bush and Alan Greenspan never fully weaned the economy of their shock treatments that followed the dot.com crash and the shock of September 11th.
This time around, the stimulus-fueled recovery is so mild that the economy is already relapsing into recession before the Fed has even begun to tighten. This puts Bernanke in a very difficult position. He either follows through on his loudly-trumpeted plans to end quantitative easing this summer, or abandon those plans in favor of more stimulus. Both choices are unappealing.
This is the lead article for the June 2011 edition of the Global Investor Newsletter. For full access to the remainder of this article, please click here.
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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.
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