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Thread: 'Happy Days Aren't Here Again' - Peter Schiff

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    Default 'Happy Days Aren't Here Again' - Peter Schiff

    from

    (snip)"Have you heard the great news? The recession is over! It's true; I saw it on TV. Why fret about growing unemployment lines when banks are paying big-time bonuses again?

    Proof of the turn was apparently revealed by the 2nd quarter GDP figures that showed that the economy declined by only 1%. After four consecutive quarters of negative GDP, the green shoots now assume that growth will resume over the summer. But before we pop the corks, it may be worthwhile to ask, "what really has changed, and what is responsible for our new lease on life?"

    In truth, because of the continued profligacy of the government and Federal Reserve, the imbalances that caused the current recession have actually worsened. We are now in an even deeper hole than when the crisis began. Rather than wrapping up a recession, we are actually sinking into a depression. If things look better now, it's just because we are in the eye of the storm.

    We must remember that recessions inevitably follow periods of artificial growth. During these booms, malinvestments are made which ultimately must be liquidated during the ensuing busts. In short, mistakes made during booms are corrected during busts - and in the recent boom we made some real whoppers. We borrowed and spent too much money, bought goods we couldn't afford, built houses we couldn't carry, and developed a service sector economy completely dependent on consumer credit and rising asset prices. All the while, we allowed our industrial base to crumble and our infrastructure to decay.

    In order to lay the foundation for real and lasting recovery, market forces must be allowed to repair the damage. However, current policy is counterproductive to this end. Trillions in stimulus dollars have kept the party going, but now what? How does deficit spending by the government address the problems that brought about the crash? It doesn't; it just delays and worsens the hangover - and we have to hope we don't die of alcohol poisoning.

    By interfering with the unpleasant forces of the recession, we simply trade short-term gain for long-term pain. By propping up inefficient companies that should fail, we deprive more effective companies of the capital they need to grow. By holding up over-valued asset prices, we prevent the prudent or less well-off from snatching them up and, in doing so, creating a new price equilibrium based upon reality. By maintaining artificially low interest rates, we discourage the very savings that are so critical to capital formation and future economic growth. In addition, the false economic signals the Fed sends the market prevent a more efficient re-allocation of resources from taking place and leads to even more bad economic decision being made. By running such huge deficits, we further crowd-out private enterprise by making it harder for businesses to invest or hire.

    The recently passed "cash for clunkers" program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy. The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don't they realize that is precisely the behavior that got us into this mess?

    Think about it this way. If your friend were in trouble because he had too much debt, would you encourage him to take on even more? Wouldn't a real sign of progress be a reduction of debt, even if he had to cut back on his everyday expenses? What is true for an individual is also true for a collection of individuals, even if they call themselves a 'government.' If, as a country, we are even deeper into debt now than we were before, we are worse off. Period. The fact that the additional debt enabled better short-term GDP numbers is a long-term negative.

    Since we have learned nothing from past mistakes, we are condemned to repeat them. As if we have not already suffered enough as a consequence of the Bush/Greenspan stimulus, Obama/Bernanke are giving ever larger doses, which will prove lethal to any recovery. The recession is over; long live the depression!"(snip)

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    Default Re: 'Happy Days Aren't Here Again' - Peter Schiff

    Quote Originally Posted by Melonie View Post

    The recently passed "cash for clunkers" program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy. The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don't they realize that is precisely the behavior that got us into this mess?
    Priceless!!!

    Not to mention destroying these low cost cars is going to do wonders for the poor who depend on used vehicles for transportation needs.

    There is going to be a lot of unintended consequences on this one I believe.

    I hear there is also a China connection to all this too. ( )

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    Default Re: 'Happy Days Aren't Here Again' - Peter Schiff

    There is going to be a lot of unintended consequences on this one I believe
    There will certainly be consequences. The big question of course is whether or not those consequences were actually unintended. For example, the proverbial 'tin foil hat' crowd are of the opinion that one of the 'cash for clunkers' program's stealth purposes is to provide the means for 'poor' Americans to gain approval for new car loans that they would otherwise not be able to get ... and which their ability to repay is questionable at best. This would create a scenario where, like delinquent 'subprime' mortgages and gov't imposed moratoriums on foreclosures, future delinquent 'subprime' auto loans will be accompanied by gov't imposed moratoriums on reposessions. In the final analysis, for many people the fact that their home mortgage / auto loan is delinquent is meaningless as long as they are allowed to continue living in the house / continue driving the car without having to continue making payments !

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    Default Re: 'Happy Days Aren't Here Again' - Peter Schiff

    I have to say I'm impressed with your understanding and simple explanation of some very complex issues, Melonie!

    You're not only a hot therapist, you might just be a hot economist!

    I have never been one to rock the boat before the last 3 years that Congress has been a bunch of liberal idiots with bad ideas, but I am now.

    Do EVERYONE a favor and check out www.GOOOH.com

    Replace the house of (NON)Representatives with common sense Americans who do what's right for the country, not the special interests who get them elected with $$$.

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    Default Re: 'Happy Days Aren't Here Again' - Peter Schiff

    Quote Originally Posted by Melonie View Post

    The recently passed "cash for clunkers" program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy. The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don't they realize that is precisely the behavior that got us into this mess?

    (snip)
    Right now the problem is Americans are saving too much and not spending enough, which is why economic growth is slow. Americans are spending less because they are worried about losing their jobs. Stimulating the economy will improve consumer confidence which will in turn encourage consumers to spend more and get the economy growing.

    Trading in gas-guzzling vehicles for more fuel-efficient cars will help the economy in the long run. If consumers are spending less money on fuel, they will have more money to spend on other things.

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    Default Re: 'Happy Days Aren't Here Again' - Peter Schiff

    I have to say I'm impressed with your understanding and simple explanation of some very complex issues, Melonie!
    Thanks, but ... a lot of other posters would tell you that I'm looking at economic issues from a purely conservative / pessimistic point of view. All I can say is that whatever insight I have been able to learn about the US economy was the result of listening to drunken Manhattan bankers / brokers / CEO's / politicians etc. talking amongst themselves in VIP rooms - thinking that the big titted blonde on their lap was totally incapable of absorbing any of the subject matter being discussed !


    Right now the problem is Americans are saving too much and not spending enough, which is why economic growth is slow. Americans are spending less because they are worried about losing their jobs.
    Some would argue that the reason Americans are unable to spend at the levels of the past is that it is no longer possible for them to conjure up 'magic money' via real estate re-fi's, via zero down zero interest loans etc. In point of fact, the average American spent 6% more money than they actually earned over the past few years. With a tightening of creditworthiness by lenders that is closer to long term historical levels, this has effectively cut 'spendable money' by 6%. Then consider that rising prices for 'necessities' such as food, fuel, medical, state and local taxes etc. is absorbing a larger share of incomes, leaving less and less money for 'discretionary spending'.

    Bottom line is that 'discretionary spending' MUST be reduced by virtually all Americans if they wish to avoid bankruptcy. Expansion of credit offered to risky borrowers will NOT happen ( well in the absence of US gov't intervention, anyhow) meaning that they can no longer spend more than they earn. The share of money being 'extracted' from most Americans as a result of US dollar devaluation ( = rising oil and food prices ), from rising state and local taxes, etc. is increasing much faster than the size of their paychecks, thus leaving fewer dollars for 'discretionary spending'. In theory ( Austrian theory LOL ), a true stimulus would require some sort of measure that actually provided more 'discretionary spending' dollars not fewer. Of course this would mean something like (gasp) tax CUTS, like a strengthening of the US dollar via reduced gov't borrowing / spending etc. From a reality standpoint, neither of these has a snowball's chance in hell of happening in the short term.
    Last edited by Melonie; 08-07-2009 at 08:19 AM.

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