Article by peter schiff - Mountain Buzz

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Old 06-23-2009   #1
conifer, Colorado
Join Date: Jan 2006
Posts: 1,025
Article by peter schiff

This guy has been dead on over the past 3 years regarding the us encomony. Google Peter Schiff FSU to see his weekly editorials, very eye opening.
False Confidence

by John Browne, Senior Market Strategist, Euro Pacific Capital | May 27, 2009

"Socialism is the philosophy of failure, the creed of ignorance and the gospel of envy," said Winston Churchill. Although it inevitably lowers living standards, socialism feels good - at least at the outset - as "free money" flows in great abundance. Keep this in mind as we examine the "good news" about consumer confidence.
Last week, it was reported that consumer confidence has seen an unexpected lift. In response, the sluggish stock market saw a manic 196-point rally.
This mania overrode losses from the week's other big news: Great Britain was put on negative credit watch by Standard & Poor's; the U.S. markets tanked on expectations of a similar downgrade domestically; and, Case-Shiller reported an unrelenting slide in home prices. In other words, the economic decline continues.
So, why are consumers so confident? They are being deceived by "free money" into believing in the power of socialism.
Since the start of the crisis, the Fed has held interest rates to an artificially low level, greatly helping borrowers who can obtain credit. Also, the Administration has made it clear that it will not allow a major bank failure, even if accounting rules have to be changed to give the appearance of solvency. Including guarantees, the entitlement-based stimulus packages have sprayed trillions of dollars into the economy, with minimal oversight.
None of these policies aid recovery, nor do they allow resources to be allocated more efficiently. Instead, they prolong economic dislocation, increase the influence of the federal government, and drag America deeper into debt.
It is true that the financial collapse that threatened does appear to have been averted by "officially" hiding and avoiding the problem of toxic assets. But the lesson from Japan, which did the same, is that avoidance is no cure and will only allow the wounds to fester.
In other words, the government is forcing the bone to heal before it's been reset, so that even if we're happy to be limping now, it will be that much harder to ever correct our gait down the road.
Most of the evidence shows, with the damage done to debtor countries like America, world trade is shrinking at an alarming pace. Socialists may argue that any further economic decline will simply be met by additional government spending. But this raises a novel and alarming question: how much more can the Administration spend? Or, more critically, how much more can it borrow?
We are in an age of massive deleveraging. Cash is scarce and becoming more scarce by the day. The recession is worldwide, and even creditor nations like China are spending their reserves on internal economic stimulus. In aggregate, major debtor governments have spending plans of some $5 trillion in the near term. From where will such a substantial sum come in a world long of paper debts but suddenly short of cash?
If the U.S. Treasury fails to find buyers for its massive calendar of debt, the Fed will have to raise interest rates. This will hit all borrowings, including mortgages. It will be likely to drive consumer spending down, bankruptcies up, and unemployment to depression-era levels.
Already, with the securitization markets dead and some $3.5 trillion of underwater commercial real estate loans, America's economy looks set to take another hammer blow - a blow that might be too big for Daddy Government to handle.
Consumers may be confident that something is "being done" to solve the economic crisis, but either do not understand or have misplaced faith in what the corrective policies amount to - socialism. It may feel good now, but it is neither wise nor sustainable.
All indicators are still negative, and the government's actions have merely covered over that weakness. Indeed, it appears that the Administration is driving us deeper into recession. It is likely that, when reality dawns, the rush from the U.S. dollars, stocks, and bonds will be truly devastating.
So, ignore the vagaries of consumer confidence polling and stick to the enduring laws of economics. Production leads to stocked shelves, but looting leaves them bare.
Copyright 2009 John Browne
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Old 06-23-2009   #2
Denver, Colorado
Paddling Since: 1999
Join Date: Feb 2004
Posts: 861
Mr C,
One minor correction: This article is not written by Peter Schiff. It was written by John Browne who works for Schiff's investment firm, Euro-Pac. But, you are right... Schiff and Browne have been getting it right for years.

As for this article:

I'm afraid that Browne will be right, again. The US economic house of cards is being held together by the U.S. Treasury's ability to "find buyers for its massive calendar of debt." If China, Japan and other countries stop buying T-bills then the US house of cards collapses.

The scary thing is is that these other countries are already talking behind closed doors (while excluding the US in their debates) about what should be done about their dilemma. Read this article by economist Michael Hudson to see how true it is.

My only beef with the article is that Brown should rightly call what is happening as a form of State-socialism. There is a big difference between state-socialism and socialism. There is plenty of information out there for anybody who wants to understand the difference.

With that being said... I agree that State-Socialism is a horrible idea and has been proven that it will not work... just ask the Russians.

Here is a funny thing about the state intervention ( and state-socialism) debate that takes place between conservatives and progressives.

Economist Dean Baker said it best in his book, "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer"

"The key flaw in the stance that most progressives have taken on economic issues is that they have accepted a framing whereby conservatives are assumed to support market outcomes, while progressives want to rely on the government . . . The reality is that conservatives have been quite actively using the power of the government to shape market outcomes in ways that redistribute income upward. However, conservatives have been clever enough to not own up to their role in this process, pretending all along that everything is just the natural working of the market. And, progressives have been foolish enough to go along with this view." He goes on to say, "both conservatives and liberals want government intervention. The difference between them is the goal of government intervention, and the fact that conservatives are smart enough to conceal their dependence on the government.... [conservatives] want to use the government to distribute income upward to higher paid workers, business owners, and investors. They support the establishment of rules and structures that have this effect... in these areas of public policy . . . conservatives are enthusiastic promoters of big government. They are happy to have the government intervene into the inner workings of the economy to make sure that money flows in the direction they like -- upward. It is accurate to say that conservatives don't like big government social programs, but not because they don't like big government. The problem with big government social programs is that they tend to distribute money downward, or provide benefits to large numbers of people."

A classic example of conservatives being in favor of Big government is their support for maintaining the massive military build up. These conservatives will run around and claim that the gov't should not get involved with creating stimulus packages to create jobs, and should just allow the "free market" to do it's thing. But, then when somebody mentions that we should cut back the military budget they will quickly say, "If we do that then we will lose American jobs." Stimulus spending to create jobs and military spending to maintain jobs are both forms of gov't intervention in the market... but somehow the conservatives don't see it this way.

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Old 06-24-2009   #3
Durango, CO
Paddling Since: 1990
Join Date: Apr 2005
Posts: 211
Welcome to globalization- the fair and just equalization of wealth (at least in theory).
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