August 04, 2009

Schiff's Jeremiad, or a Voice Bumming Us Out in the Wilderness

I don't know why, exactly, Peter Schiff is so right all the time - but he is. Is it just because he's a Cal man? There must be more to it than that. In some respects I suppose his politics are different from mine, but maybe in a collapsing economy the apparent differences are narrowed to triviality. Once the government runs out of options, it doesn't much matter whether its comprehensive bankruptcy prevents it from pursuing liberal or conservative policies - it can't really pursue either one.

I never really bought into the idea that took the basic form, "well, the American economy is bad, but the economies of foreign countries are much worse." It seemed like way too much of a coincidence. One can understand why the American economy would grind to a halt - it's based on personal consumption, which was fueled in large part by debt, which in turn was financed by lines of credit and inflating housing prices. So when the preconditions were removed (the housing market always goes up!), it makes sense that what Peter Schiff calls our "phony economy" would collapse. That has now happened. But our misery-loves-company argument smacked of the usual American Exceptionalism and arrogance. Schiff sets the record straight on that score - the sag worldwide owes to the intricate interplay between foreign economies and ours (such as buying all that bad paper based on securitized mortgages), but that does not mean that all foreign economies suffer from the same underlying malaise of bubble economics.

If Schiff sounds over-the-top, bear in mind that he hasn't really been wrong yet. Ben Bernanke, on the other hand, has been so wrong over the last few years that it would be hilarious if it were not so horrifying. Schiff believes that the desperate attempts by the political establishment to stave off the day of reckoning, when we come to terms with the essential phoniness of an economy based on borrowing vast sums of money in order to buy things from each other, most of it imported, will simply make the problem worse. This was my essential problem with Obama's stimulus package. What happens when the money is gone? And what is the effect on the deficits and the increased need to borrow even more when federal tax revenues are falling off a cliff (down 18% over the last year)? Advocates for stimulus, such as Paul Krugman, never answer that question, so mesmerized are they by Keynesian thinking. But Keynes was not writing about economies which were past their prime and sustained by life support - he was writing about cyclical downturns.

The dollar is sinking, foreign investment in U.S. Treasuries is drying up, and we're running out of gags to keep the circus going. The dollar is losing its former sheen. And manipulating the Dow Jones, like the patriotism of another era, is probably just the last refuge of scoundrels.


  1. Anonymous8:22 PM

    Peter Schiff has been right because he has been educated in the Austrian school of economics. (The free market-Ayn Rand type economics you despise.) You have been falsely led to believe this fiasco has been caused by unregulated free markets, when it was the lack of free markets that caused this mess. A group of men meeting in secret thought they knew better than free markets what interest rates should be. The artificially low interest rate they set and our debt based monetary system, encouraged borrowing and created an excess supply of money and loads of malinvestment.

  2. hammerud12:16 PM

    "But Keynes was not writing about economies which were past their prime and sustained by life support - he was writing about cyclical downturns." Good point and good questions. Obama's people are not stupid. The know all of this stuff. So why are they following a course that they have to know fixes nothing? The answer is that they want to increase government control over virtually everything, and doing things that actually fix the economy does not facilitate that. I believe more and more government control is their agenda and their goal.