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Peter Schiff's WSJ op-ed piece

Saturday, December 27, 2008

That second to last page in the first section of the Wall Street Journal continues to offer up commentary that you just don't see elsewhere in the mainstream media.

Over the last month or so, as it has become increasingly clear that our monetary system may be at the root of many of our current problems, there were at least three calls for a new monetary order, all of which involved gold in some way.

See the following references from back in November:

(Hmm... maybe I should be more demanding when crafting the titles to these posts - it seems to have had the desired effect.)

Today, Peter Schiff weighs in with some quite sensible arguments regarding the recent mania in economic stimulus programs around the world, figuring that maybe the free market would be better off deciding who wins and loses rather than governments.
There's No Pain-Free Cure for Recession
Belt-tightening is required by all, including government.

As recession fears cause the nation to embrace greater state control of the economy and unimaginable federal deficits, one searches in vain for debate worthy of the moment. Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug.

With faith in the free markets now taking a back seat to fear and expediency, nearly the entire political spectrum agrees that the federal government must spend whatever amount is necessary to stabilize the housing market, bail out financial firms, liquefy the credit markets, create jobs and make the recession as shallow and brief as possible. The few who maintain free-market views have been largely marginalized.
It is rather remarkable that the only discussion you really hear these days is how big and how far-reaching the economic stimulus should be with few elected officials (Ron Paul, Fred Thompson, and a couple others) questioning how more easy money is going to solve the problems caused by too much easy money.

After discussing Keynesian versus Austrian economics, an increasingly popular topic these days but one that still gets far too little attention, Peter concludes:
By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.

The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.
At this point, the free market solution would likely be a depression rather than a recession, hence the reason that no elected official or right-thinking economist would contemplate anything other than the current course.


Vespucian said...

Wasn't a recession retroactively declared as having started 1Q 2008? If so, won't the gvt have to declare a depression by or after 1Q next year?

Anonymous said...

I hope your last paragraph was being sarcastic.

Tim said...

I realize it's hard to tell sometimes, but I was being very serious in the last paragraph.

Hadley V. Baxendale said...

Everyone likes to talk about a "free-market" but the US hasn't had a free-market economy since at least 1913 when the Federal Reserve was established to "regulate" the economy through monetary policy. The federal reserve engineered the boom of the 1920s and the depression of the 1930s; in the 1930s, any last vestiges of a free market were gone. Basically, a free-market cannot exist when a fiat money is the currency which can be printed by a central bank. Prior to 1913, the US had "depressions," but they never lasted as long as the one managed by the US government in the 1930s -- under a free-market system, that depression should have lasted a year or two. Blah, blah, blah. So the last paragraph is a non-sequitur.

Anonymous said...

He is a lot more right than wrong. Given that 95%+ of the Financial Machine Community is on the Buy side, it is valuable to listen to guys like Peter from the sell side. He is abrasive, but so are bear markets and depressions. He has been 98% RIGHT compared to 98% WRONG by Wall Street.

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