A Crazy Idea: Listen To The People Who Got It Right
Peter Schiff has an editorial in the Wall Street Journal today. If you don’t know who Peter Schiff is, or even if you do, check out this video compilation we posted several months ago. Oh heck, let’s just repost it, shall we? It never gets old:
As you can see from this footage, Schiff predicted our economic collapse years ago, when just about every other “expert” in the political, business and pundit worlds thought things were peachy. Now, in today’s editorial, he’s again warning us of trouble ahead. Our government can’t just spend its way out of this problem, he says. Why not? Because we’re broke, that’s why, and the magic Mao Zedong Visa card we’ve been charging everything on for years is maxed out:
… creditor nations [like China, Japan, and Saudi Arabia], who already own trillions of dollars of U.S. government debt, are the only entities capable of underwriting the spending that Mr. Obama envisions and that U.S. citizens demand.
These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people
… it seems inconceivable to President Obama, or any respected economist for that matter, that our creditors may decline to sign on. Their confidence is derived from the fact that the arrangement has gone on for some time, and that our creditors would be unwilling to face the economic turbulence that would result from an interruption of the status quo.
But just because the game has lasted thus far does not mean that they will continue playing it indefinitely. Thanks to projected huge deficits, the U.S. government is severely raising the stakes. At the same time, the global economic contraction will make larger Treasury purchases by foreign central banks both economically and politically more difficult.
The sections we put in bold above called to mind another editorial in today’s editions, this one by John Lee in the Times Online. Today is the first day of the Year of the Ox in China, but as we’ve written about ourselves in the past, Lee points out that China’s economy has already been badly gored by the financial crisis. In other words, the very people we are expecting to fund our grand stimulus plan could use some serious financial stimulation themselves:
Even before the global financial crisis, those in absolute poverty (earning less than US$1 a day) doubled in China over the past decade. More than 400 million had seen their net incomes decline over the same period despite record GDP growth. It is no wonder that domestic consumption growth has been slow and will not be able to take up the slack as the export sector suffers. Instead China must rely on state-led fixed investment to keep growth at 8 per cent, despite acknowledging that this strategy is becoming more inefficient and wasteful, and therefore increasingly unsustainable.
China’s government has already been stimulating its economy with massive government spending, and even keeping its people intentionally poor during the boom years. And yet, we’re counting on them to suck up another couple hundred billion–at least–in Treasury bonds to pay for our recovery? Hmm. Is it just us or, on the face of it, does that seem incredibly … well … iffy?
How long until the Chinese start spending on their own recovery? How long until they put what they have left towards their own stimulus plan? Even more frightening still, how long until they start dumping the hundreds of billions in bad Uncle Sam I.O.U.s they already own on the global market?
On a separate, but related topic, how long until we here in America get ourselves some new “experts“? Peter Schiff was one of the few figures on the national scene who predicted our current problems. At the time, most of the establishment on the left and the right literally laughed at him. (See the video above.) Wouldn’t it be wise to heed Schiff now?
Sadly, that is not what’s happening in Washington. Instead, Bailout Hank Paulson, one of the main people who caused the economic collapse in the first place, has handed the economic reins to the likes of Tim Geithner and Lawrence Summers, two men with equally dubious track records. And, true to form, they’re pulling out the government AMEX again for another trillion dollar cash advance.
Peter Schiff - a lone voice who tried to save our economy. He endured being laughed at and ostracized by the “economic experts” and yet continued on with his message. No denying that he was on the right track. These experts should all apologize (along with the media). As for me, I am grateful to him for caring enough to come forward.
Yes, Perter Schiff is great………..a truly Economic experts, I guess it’s not too late to follow his guidance.I would like to receive and learn all his idea. Thanks!
Schiff was right about the equities going down the toilet and has been wrong about a whole lot of other things. From Fortune magazine:
“Ironically, though, the year that Schiff became a star prognosticator on TV was also one of the worst periods ever for his clients. In most cases the foreign markets he likes got hit even harder than the U.S. in 2008 (Australia’s ASX 200, for instance, fell 41.3%, vs. 38.5% for the S&P 500), and even more surprising to Schiff, the U.S. dollar rallied strongly as investors rushed to the perceived safety of Treasuries.”