DecliNATIONblog

I started and completed Peter Schiff’s newest masterpiece yesterday, How an Economy Grows and Why it Crashes.

Written as an allegory about island dwellers that use fish for currency, the book explains how simple economics is and should be and that much of the confusion regarding the subject of economics is placed there intentionally by the elitists that don’t want the masses to get what they are doing.

The book is humorous at points and Schiff does a clever job of altering the names of real players in our nation’s economic history to expose the role that they each played.  Historical figures such as FDR, Alan Greenspan, LBJ, Richard Nixon, Ben Bernanke, Hank Paulson, George W. Bush, and Barack Obama all make an appearance on the island.  Peter Schiff writes himself into the story as a guest on Larry Kudlow’s show sounding a clarion call that the no-holds-barred consumption mentality is over.

The book does an excellent job of exposing Keynsianism as a fraud and proving that the Austrian School of Economics is a much better approach to handling both recessions and depressions.  In addition, the book explains what capital is, how trade works and benefits an economy, and how government interference is a plague to any free-market economy.

Coincidence that I wake up to news that the President’s national debt commission is publicly announcing that our nation’s debt (over 14 trillion by next year; or about $47,000 for every RESIDENT) is “like cancer” and will “destroy the country from within.”

But I already knew that, after all, I had just completed Peter Schiff’s new book (Spoiler Alert) and that is exactly how it ends.

Is this guy serious?

Paul Krugman is right in the fact that “we are now, I fear, in the early stages of a third depression”.  So I am not concerned with his conclusion as much as I am concerned with his solution.

Government needs to spend more money?

Government needs to get more involved in correcting this mess?

Deflation is of all things the thing to be feared most?

And they gave him a Noble prize for this nonsense.

The fact is there have been other economic depressions in our nations history, other than the 2 that Mr. Krugman brings up.  We actually had a depression in 1920-1921 albeit short-lived.  According to the Austrian School of Economic Thought, the depression was needed for market correction and therefore was a good thing in that it liquidated malinvestments left over from WWI.  What Keynsians like Krugman fail to recognize is that it is government intervention that in fact prolongs the depression i.e. FDR’s New Deal.

If you simply allow the free-market to correct itself as President Harding did in the 1920 depression, then the depression will end quickly and recovery will begin sooner.

I just don’t see Krugman, or Obama for that matter, getting the point and letting the free-market do what it needs to do.

I can assure you that Krugman’s “hair of the dog” spending treatment will only delay what the market needs to do and will in fact make it that much worse when the day of reckoning arrives.

Scary times.

Some 30 years ago, the economist Milton Friedman appeared on The Donahue Show with Phil Donahue.  The entire interview can be viewed on Youtube here (note: The interview is in 5 parts).

The following is a 2 minute transcription where Friedman takes Donahue to task for his government-interventionist ideas:

Donahue:  When you see around the globe, the maldistribution of wealth, the desperate plight of millions of people in underdeveloped countries, when you see so few “haves” and so many “have nots”, when you see the greed and the concentration of power; aren’t you ever…did you ever have a moment of doubt about capitalism?  And whether greed is a good idea to run on?

Friedman: Well first of all, tell me, is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy, it’s only the other fellow whose greedy. The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a…from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind grinding poverty you’re talking about, the only cases in recorded history; are where they have had capitalism and largely free-trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

Donahue: But it seems to reward, not virtue, as much as ability to manipulate the system.

Friedman: And what does reward virtue? You think the Communist Commissar rewards virtue? Do you think a Hitler rewards virtue? Do you think, excuse me, if you’ll pardon me, do you think American Presidents reward virtue? Do they choose their appointees on the bases of the virtue of the people appointed or on the bases of their political clout? Is it really true that political self-interest is nobler somehow than economic self-interest?

You know, I think you’re taking a lot of things for granted. Just tell me where in the world you find these angels, who are going to organize society for us.

Donahue: Well…

Friedman: I don’t even trust you to do that.

You just don’t find that kind of exchange on TV anymore.  It is so easy to sit back and pick on free-market capitalism, as is the zeitgeist, but truth be told it was not the free-market that put us in this position, but government intervention into the free-market.  A great expose testifying to this fact is Meltdown by Tom Woods.  I appreciate Milton Friedman’s contribution to academia and free-market capitalism and it is my guess that his keen insight is going to gain more and more fans as people begin to realize how accurate he was.

After Peter Schiff’s great internet fame of mid-to-late ’08 came the ridicule and furry of the bloggers and the WSJ.  Sure the dollar surged and Schiff’s advice looked bad in early ’09.  But he stayed consistant and asked his investors to stay the course and now…he looks like a prophet yet again.

If you have not already done so, please read Crash Proof by Peter Schiff.  In the book he outlines why we had the dot.com boom, the housing bubble, and why they both HAD to fail.

He has been preaching the collapse of the dollar, the rise in gold and silver, and how investors can capitalize to get ahead of the game.

Well this week was sweet redemption as reported by Bloomberg:

The dollar declined beyond $1.41 against the euro for the first time this year as evidence the global recession is easing sent investors in search of assets with higher returns.

and this:

The dollar weakened 1.4 percent to $1.4136 per euro at 4:17 p.m. in New York, from $1.3941 yesterday, extending its decline this month to 6.4 percent, the biggest since December, when it dropped 9.2 percent. The dollar depreciated 1.7 percent to 95.24 yen from 96.85. The yen advanced 0.3 percent to 134.67 per euro from 135.04 yesterday.

The truth is the global economy is doing quite well and as I posted last week, our foreign creditors are catching on to “Our Lord and Savior” Obama’s plan to inflate our way out of debt.

International investors own about 51 percent of the $6.36 trillion in marketable U.S. government debt outstanding, up from 35 percent in 2000, according to data compiled by the Treasury.

South Korea is the latest holder of U.S. government debt to reduce its holdings. China, the largest foreign owner of Treasuries, said in March it was “worried” about its $767.9 billion investment and looking for assurances the value of its holdings would be protected. China has shifted holdings into bills from notes, more at risk when interest rates rise.

Virtually all of the losses Schiff’s clients experienced in late ’08 and early ’09 have been erased and many are now seeing serious growth.

Don’t worry, this is going to get much much worse before it gets any better-which means there is plenty of money to be made with the Peter Schiff approach to investing.

I discovered Peter Schiff about a 9 months ago from a YouTube video, Peter Schiff was Right.  Since then I have read his book “Crash Proof” at which point I became a believer.  I frequent his website daily and on Fridays I make it a point to read his weekly commentary.  Today was no exception.  I had actually found this article last night from thestreet.com, but this edition comes directly from his website.

While economists and real estate investors “celebrate” the slight deceleration in the pace of home price declines in the recent data, a quick look at home price trajectories over the past 100 and 50 years reveals little to cheer about and much to be feared.

More significant than small month-to-month changes is the flow of home price patterns over decades. In his book Irrational Exuberance, Robert Shiller determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased by an average of about 3.4% per year. These figures have not been adjusted for inflation. If they had, home prices would have outpaced inflation by only the slimmest of margins.

I for one and sick and tired of people calling their homes an “investment”, or worse those that expect their home to actually appreciate at 10% a year and NEVER depreciate.  Americans fell in love with the idea that their home doubled as their ATM but those days where one large head fake and hopefully we will never see them again.

He continues…

The government, through deficit spending, stimuli and bailouts, is literally pumping trillions and trillions of new dollars into the economy. Once the bloated inventories of the boom years are worked through, this torrent of new cash will push prices up with across the board. Inflation, more virulent than the variety seen in the 1970s, will put a nominal floor under home prices. But the benefits of seemingly stable home prices will be illusory. What good is a $200,000 house if it costs nearly that much to fill the refrigerator? However, inflation putting a floor under home prices does nothing to increase real demand for houses. With the prices for stocks, commodities and food going up faster than the prices of homes, residential real estate will remain a lousy investment. As a result, be wary of those who have called a housing bottom and now recommend beaten-down homebuilding stocks.

I realize that some individuals have fallen off the Peter Schiff bandwagon because of the dollar rally of late ’08 and early ’09, but they will be back soon enough when our dollar is worthless and his long-term investment strategy proves true.

Enjoy the complete article here.