C
CPA2
Guest
Martin Weiss Interviews Peter Schiff
part 1
When asked about Obama’s role in the economy, most Wall Street pundits are content to either cheer or jeer from the sidelines. They give you their opinion. They tell you what to buy or sell. And then they’re done.
I decided that the timing was right for this long-overdue interview with one of the few in our industry who not only has urgent advice to help protect investors in this crisis … but is also striving to DO something about it for his fellow citizens.
Martin Weiss: Peter, for the past decade and a half, we have seen massive blunders in monetary policy.
The Fed’s easy money in the mid-1990s spurred the tech stock boom, which led to the Tech Wreck in 2000.
The Fed then responded by pushing interest rates down to their lowest level since World War II, generating still another, even larger bubble and bust — this time in housing.
Next, in response to the housing bust, the Fed dropped rates to zero and embarked on the biggest money-pumping binge of all time, which, in turn, led us to the sovereign debt crisis.
Peter Schiff: Let me first tell you what I think should have happened: A healthy cleansing of the economic system — an opportunity for the country to greatly reduce its huge debt burden. No matter how painful that might have been in the short term, it would have been the right thing for our country.
But the politicians didn’t want that to happen. Instead, they did whatever they could to postpone the pain; and in the process, they have now done far more damage to our country than we would have seen otherwise. They are continually acting in their own self-interests, but against the national interest.
Weiss: In each cycle, though, they claim to have saved us from a far deeper economic decline.
Schiff: Yes, the first recession of the past decade — in 2001 and 2002 — was shallow. But that was only because of the stimulus from the Fed and Congress. And as a direct result, we got the housing bubble, the housing bust, and a collapse in 2008 that was a lot worse than the 2001-2002 recession would have been had they just let it run its course.
Now, the politicians and central bankers have again intervened — this time with even bigger stimulus and bailouts, again preventing the recession from correcting the imbalances in our economy.
So going back to your original question — “what’s next?” — well, the sequence of events I’ve just given you implies the answer.
Weiss: Please be more specific.
Schiff: The government’s Herculean efforts to counter the collapse of 2008 merely postponed the inevitable and compounded the problem. Result: The next crisis is likely to be WORSE than the last crisis would have been had they simply allowed it to happen.
Weiss: I think you’re hitting the nail on the head. So let’s narrow this down very clearly: If President Bush had NOT signed the $700 billion TARP package … if President Obama had NOT given us the $800 billion stimulus … and if the Fed had NOT printed $1.5 trillion, how severe would the last recession have been?
Schiff: No one can say for sure.
Weiss: True, but imagine this scenario: Official unemployment at 16.5 percent — seven percentage points higher than today’s. Total job losses of 16.6 million — double the actual total so far. An implosion in the entire U.S. economy with an 11.1 percent decline in GDP, or more than four times worse than last year’s contraction.
But if this sounds like a doomsday science fiction to some people, I have news for them: In reality, it’s the scenario that was just painted by two of the nation’s most prominent economists, whose views are close to those of the Obama administration — Mark Zandi, chief economist at Moody’s Analytics, and Alan Blinder, the former vice chairman of the Federal Reserve.
Their agenda is to defend the government’s aggressive interventions in the economy — to show people how bad things would have been in the past if the administration, Congress and the Fed had not come to the rescue with the bailouts, the stimulus and the money printing.
Now here’s my question to you: If we continue on our current course, is this the scenario — official unemployment at 16.5 percent and GDP contracting by 11.1 percent — that we’re looking at down the road?
Schiff: We’re going to see a huge contraction in GDP regardless of what we do. Our economy is more than 70 percent consumption, and we’re consuming too much. That’s part of the problem.
We have to consume less so we can start saving more. We have to transition from (a) a bubble economy based on excessive consumer credit and spending to (b) a stable, vibrant economy based on under-consumption, savings, capital investment, and production.
That transition is going to necessitate a large, one-time downward adjustment in our GDP. Then we can right the ship. Then we can get out of this hole and start building the economy back up again. But the government refuses to allow this to happen, and therein lies our biggest problem.
Weiss: So you’re saying that, sooner or later, there’s really no way to avoid a big decline in GDP.
Schiff: The only way would be to create massive inflation. And then, of course, we’d merely be avoiding it in nominal terms. In real terms, especially in terms of gold, GDP is still going to plunge. **Certainly in terms of our standard of living and quality of life, Americans are going to see a huge decline. No doubt about it! It’s the inevitable result of years of reckless indulgences that cannot be undone. **
What’s worse is that, instead of transitioning to a more wholesome economy based on savings and investment, we seem to be transitioning from a market-based economy to a centrally-planned economy, and that’s a prescription for disaster.
part 1
When asked about Obama’s role in the economy, most Wall Street pundits are content to either cheer or jeer from the sidelines. They give you their opinion. They tell you what to buy or sell. And then they’re done.
I decided that the timing was right for this long-overdue interview with one of the few in our industry who not only has urgent advice to help protect investors in this crisis … but is also striving to DO something about it for his fellow citizens.
Martin Weiss: Peter, for the past decade and a half, we have seen massive blunders in monetary policy.
The Fed’s easy money in the mid-1990s spurred the tech stock boom, which led to the Tech Wreck in 2000.
The Fed then responded by pushing interest rates down to their lowest level since World War II, generating still another, even larger bubble and bust — this time in housing.
Next, in response to the housing bust, the Fed dropped rates to zero and embarked on the biggest money-pumping binge of all time, which, in turn, led us to the sovereign debt crisis.
Peter Schiff: Let me first tell you what I think should have happened: A healthy cleansing of the economic system — an opportunity for the country to greatly reduce its huge debt burden. No matter how painful that might have been in the short term, it would have been the right thing for our country.
But the politicians didn’t want that to happen. Instead, they did whatever they could to postpone the pain; and in the process, they have now done far more damage to our country than we would have seen otherwise. They are continually acting in their own self-interests, but against the national interest.
Weiss: In each cycle, though, they claim to have saved us from a far deeper economic decline.
Schiff: Yes, the first recession of the past decade — in 2001 and 2002 — was shallow. But that was only because of the stimulus from the Fed and Congress. And as a direct result, we got the housing bubble, the housing bust, and a collapse in 2008 that was a lot worse than the 2001-2002 recession would have been had they just let it run its course.
Now, the politicians and central bankers have again intervened — this time with even bigger stimulus and bailouts, again preventing the recession from correcting the imbalances in our economy.
So going back to your original question — “what’s next?” — well, the sequence of events I’ve just given you implies the answer.
Weiss: Please be more specific.
Schiff: The government’s Herculean efforts to counter the collapse of 2008 merely postponed the inevitable and compounded the problem. Result: The next crisis is likely to be WORSE than the last crisis would have been had they simply allowed it to happen.
Weiss: I think you’re hitting the nail on the head. So let’s narrow this down very clearly: If President Bush had NOT signed the $700 billion TARP package … if President Obama had NOT given us the $800 billion stimulus … and if the Fed had NOT printed $1.5 trillion, how severe would the last recession have been?
Schiff: No one can say for sure.
Weiss: True, but imagine this scenario: Official unemployment at 16.5 percent — seven percentage points higher than today’s. Total job losses of 16.6 million — double the actual total so far. An implosion in the entire U.S. economy with an 11.1 percent decline in GDP, or more than four times worse than last year’s contraction.
But if this sounds like a doomsday science fiction to some people, I have news for them: In reality, it’s the scenario that was just painted by two of the nation’s most prominent economists, whose views are close to those of the Obama administration — Mark Zandi, chief economist at Moody’s Analytics, and Alan Blinder, the former vice chairman of the Federal Reserve.
Their agenda is to defend the government’s aggressive interventions in the economy — to show people how bad things would have been in the past if the administration, Congress and the Fed had not come to the rescue with the bailouts, the stimulus and the money printing.
Now here’s my question to you: If we continue on our current course, is this the scenario — official unemployment at 16.5 percent and GDP contracting by 11.1 percent — that we’re looking at down the road?
Schiff: We’re going to see a huge contraction in GDP regardless of what we do. Our economy is more than 70 percent consumption, and we’re consuming too much. That’s part of the problem.
We have to consume less so we can start saving more. We have to transition from (a) a bubble economy based on excessive consumer credit and spending to (b) a stable, vibrant economy based on under-consumption, savings, capital investment, and production.
That transition is going to necessitate a large, one-time downward adjustment in our GDP. Then we can right the ship. Then we can get out of this hole and start building the economy back up again. But the government refuses to allow this to happen, and therein lies our biggest problem.
Weiss: So you’re saying that, sooner or later, there’s really no way to avoid a big decline in GDP.
Schiff: The only way would be to create massive inflation. And then, of course, we’d merely be avoiding it in nominal terms. In real terms, especially in terms of gold, GDP is still going to plunge. **Certainly in terms of our standard of living and quality of life, Americans are going to see a huge decline. No doubt about it! It’s the inevitable result of years of reckless indulgences that cannot be undone. **
What’s worse is that, instead of transitioning to a more wholesome economy based on savings and investment, we seem to be transitioning from a market-based economy to a centrally-planned economy, and that’s a prescription for disaster.