PETER SCHIFF
Monday, August 31, 2009
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I think what Peter Schiff needs to do is to first go to where people are assuming. He needs to say something like this:
ReplyDelete"When we hear of the economy growing again, people usually think that that means that the economy is making things and being productive. In our case this is not really so. The economy is only going again in terms of consumption. [and then state, as always]... This is why we are creating an even more devistating problem today with all these debt-fuelling bailouts: we are not really making anything, we are only going deeper into debt. When the day comes that we can't borrow anymore, then you tell me what happens then. No productive capacity + massive debt = no money = true poverty.
I can empathise with his frustration. It is ridiculous how people cannot get this. There shouldn't even be an argument. It is mad.
Peter fails to acknowledge that it wasn't the housing bubble itself but the repackaging of high risk debt as low risk securities that essentially showed the emperor had no clothes. That was a huge failure an more deregulation isn't going to fix that problem. More regulation will. Credit is the oil of the capitalist engine. Preaching that credit is evil is nonsense. Irresponsible credit is bad, but not credit itself. I agree that America needs to produce more and spend less but that could be said of many western countries. Few have a positive trade balance with Asia because goods cannot be produced as cheaply as they can in Asian countries, by lower paid workers. What Asia still doesn't have is the varied level political stability and ingenuity and entrepreneurship prevalent in many western countries. America created the computer revolution - Asia piggybacks off it by providing cheap hardware but when has Asia created software you own?
ReplyDelete"Credit is the oil of the capitalist engine." True enough statement but clearly the commentator fails to understand that credit liquidity has to come from somewhere? Is that credit based on savings that people has amassed or is that based on fiat from some entity that declares the interest rate to be thus? If the latter, then that is funny money being generated and not in real savings. This is where the theory of business cycle applies - there is a mis-coordination between savings and investments.
ReplyDeleteTo the previous poster... Peter is not saying credit is evil, what he is saying is that capital comes from savings, and we don't have any savings... credit is being artificially created out of thin air by The Fed. We have borrowed substantial amounts of money and we used that debt not to produce goods, but to consume. That is the problem. The housing bubble would have never occurred if the government wasn't guaranteeing mortgages and keeping interest rates so artificially low. Interest rates are supposed to rise when savings are low, not drop. Repackaging of high risk debt is a symptom of our problems, not a cause.
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