 Happy Days Aren't Here Again
Peter Schiff
Aug 1, 2009
Have you heard the great news?
The recession is over! It's true; I saw it on TV. Why fret about
growing unemployment lines when banks are paying big-time bonuses
again?
Proof of the turn was apparently
revealed by the 2nd quarter GDP figures that showed that the
economy declined by only 1%. After four consecutive quarters
of negative GDP, the green shoots now assume that growth will
resume over the summer. But before we pop the corks, it may be
worthwhile to ask, "what really has changed, and what is
responsible for our new lease on life?"
In truth, because of the continued
profligacy of the government and Federal Reserve, the imbalances
that caused the current recession have actually worsened. We
are now in an even deeper hole than when the crisis began. Rather
than wrapping up a recession, we are actually sinking into a
depression. If things look better now, it's just because we are
in the eye of the storm.
We must remember that recessions
inevitably follow periods of artificial growth. During these
booms, malinvestments are made which ultimately must be liquidated
during the ensuing busts. In short, mistakes made during booms
are corrected during busts - and in the recent boom we made some
real whoppers. We borrowed and spent too much money, bought goods
we couldn't afford, built houses we couldn't carry, and developed
a service sector economy completely dependent on consumer credit
and rising asset prices. All the while, we allowed our industrial
base to crumble and our infrastructure to decay.
In order to lay the foundation
for real and lasting recovery, market forces must be allowed
to repair the damage. However, current policy is counterproductive
to this end. Trillions in stimulus dollars have kept the party
going, but now what? How does deficit spending by the government
address the problems that brought about the crash? It doesn't;
it just delays and worsens the hangover - and we have to hope
we don't die of alcohol poisoning.
By interfering with the unpleasant
forces of the recession, we simply trade short-term gain for
long-term pain. By propping up inefficient companies that should
fail, we deprive more effective companies of the capital they
need to grow. By holding up over-valued asset prices, we prevent
the prudent or less well-off from snatching them up and, in doing
so, creating a new price equilibrium based upon reality. By maintaining
artificially low interest rates, we discourage the very savings
that are so critical to capital formation and future economic
growth. In addition, the false economic signals the Fed sends
the market prevent a more efficient re-allocation of resources
from taking place and leads to even more bad economic decision
being made. By running such huge deficits, we further crowd-out
private enterprise by making it harder for businesses to invest
or hire.
The recently passed "cash
for clunkers" program (currently on-hold, as it ran out
of funding in one week) is a perfect example of how government
policy can make the economy worse. By incentivizing Americans
to destroy fully paid-for cars so they can go deeper into debt
buying brand new ones, the government weakens an already crippled
economy. The last thing we want to do is subsidize Americans
to go deeper into debt by buying more stuff. Don't they realize
that is precisely the behavior that got us into this mess?
Think about it this way. If
your friend were in trouble because he had too much debt, would
you encourage him to take on even more? Wouldn't a real sign
of progress be a reduction of debt, even if he had to cut back
on his everyday expenses? What is true for an individual is also
true for a collection of individuals, even if they call themselves
a 'government.' If, as a country, we are even deeper into debt
now than we were before, we are worse off. Period. The fact that
the additional debt enabled better short-term GDP numbers is
a long-term negative.
Since we have learned nothing
from past mistakes, we are condemned to repeat them. As if we
have not already suffered enough as a consequence of the Bush/Greenspan
stimulus, Obama/Bernanke are giving ever larger doses, which
will prove lethal to any recovery.
The recession is over; long
live the depression!
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an Economy Grows and Why It Crashes."
For a more in depth analysis of our financial problems and the
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Little Book of Bull Moves in Bear Markets" [buy
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here]
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"Crash Proof: How to Profit from the Coming Economic
Collapse" [buy
here]
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Jul 31, 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
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