 The
Devil We Know
Peter Schiff
Aug 27, 2009
Ayn Rand wrote, "when
you see corruption being rewarded and honesty becoming a self-sacrifice
- you may know that your society is doomed."
America is not doomed, but
the fellows in Washington are pushing for that outcome. It seems
that all the characters that encouraged this financial crisis
are being rewarded, and Ben Bernanke's re-nomination is no exception
to this rule. He was on the Board of Governors when Alan Greenspan
grew our bubble economy. Known as 'Helicopter Ben,' Bernanke
was the most vocal supporter of low interest rates to combat
the bogus threat of deflation, even if it meant dropping cash
from helicopters. He succeeded in his aim - as it is hard for
prices to decline while the money supply is growing by double
digits.
Of course, much of that new
money went into speculative bubbles, first in tech and then real
estate. When the misallocation became too great to ignore, the
credit markets froze and leveraged institutions started failing.
Now, Bernanke says that he doesn't want to preside over another
Great Depression. That doesn't mean he doesn't want another Great
Depression; he just doesn't want to preside over it. His plan
seems to be continuing to print money so that the depression
isn't apparent until after he leaves office. However, while Greenspan
was able to get out of Dodge, Bernanke will probably not be so
lucky, as his reappointment virtually guarantees that he will
be in the middle of the action when the bullets start to fly.
Left to clean up his own mess, Bernanke will soon regret not
quitting while the going was good.
Bernanke is being praised for
avoiding a collapse in the financial system. While he has forestalled
some short-term pain, he has in turn forsaken long-term gain.
The 'green shoots' that set the pundits alight are nothing more
than the direct effects of massive monetary expansion. What we
have is nominal growth in the unproductive service and consumption
sectors. In short, Bernanke is being praised by the drug addicts
for not cutting them off. But the thing about addiction is that
the longer you stay hooked, the more deadly the withdrawal.
What this country needs is
a Fed Chairman that is immensely unpopular, backed by a courageous
President. Under Paul Volcker and Ronald Reagan, this model proved
effective at avoiding a complete economic collapse in the early
1980's. In case posterity's resounding approval has clouded anyone's
memory, Volcker was vilified and threatened with impeachment
at the height of that crisis. Reagan's decision to stand behind
Volcker allowed the Chairman to persevere. It has never been
popular to be responsible. Only after the markets settled and
the country experienced twenty years of prosperity was history's
final judgment made about Volcker.
Greenspan undid the painful
sacrifice we made in 1981. He grew a bubble in tech stocks and
then refused to allow the economy to restructure after it burst,
instead inflating a real estate bubble in its stead. Meanwhile,
federal spending ballooned, along with unfunded liabilities and
guarantees that distorted the capital markets. The Fed created
moral hazard because the government assumed that any excessive
debt would be monetized. When push came to shove, Bernanke did
exactly that, perhaps even hiding his intervention by buying
Treasuries through intermediaries. In doing so, he allowed our
elected officials to avoid making the politically costly decisions
that would have prepared the country for future growth.
To get a sense of Bernanke's
ultimate legacy, look no further than Argentina. Though many
of the rich and powerful had moved their savings abroad, a currency
collapse wiped out the middle class in that historically prosperous
country. Is such an outcome worth the short-term comfort of avoiding
the severe but temporary pain of unemployment and mortgage defaults?
 Bernanke's
re-nomination is a politically safe decision for President Obama,
and at least Bernanke is a devil we know. However, this lack
of a 'change' for the better should squash any 'hope' for a genuine
recovery. If the Bush years were as bad as the Democrats claim,
then it is curious that they are mimicking and magnifying the
same mistakes. No one has been held accountable for a financial
crisis that the professors, pundits, and politicians told us
would not come. All the same players are running the game, always
changing the rules so they stay on top. Real 'change
we can believe in' would be a return to our roots in the rule
of law and a system of sound money - but it's hard to stay grounded
when you're throwing money from helicopters.
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Aug 26, 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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