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Peter Schiff On The Phony US Economy

Submitted by Tyler Durden on 08/04/2009 11:39 -0400

Peter Schiff

"Most of the forecasters out there can only see what's happening right now. That's why they are always so wrong. They could never connect the dots... Our phony economy is being propped up by the stimulus and artificially low interest rates, and all of that has to come to an end if we want to stop the dollar from collapsing."

Truer words have rarely been spoken.

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Wed, 08/05/2009 - 07:53 | 25498 Anonymous

Next time there is a major problem the USD will rally, it's set to rally as it is right now, long term it will decline but the real reason will be due to the trade deficit. Schiff's never heard of Japan with Debt/GDP of like 180% which no matter what cannot get their currency to drop. Schiff is just a big mouthed hack that appeals to people that like to be contrarion for contrarian's sake.

Wed, 08/05/2009 - 18:57 | 26490 Anonymous

Although I emphatically agree with Peter about the US economy being hollowed out and focused on conspicuous consumption, paper pushing, and financial engineering, I highly recommend reading the following:
http://ftalphaville.ft.com/blog/2009/08/04/65156/the-debt-inflation-myth...

"The idea that governments can readily inflate their way out of their debt problems is a misnomer — arising, perhaps, from confusion between the fate of the individual bondholder and the response of the collective market."

Peter is correct that jobs will continue to be lost, but as a result of those jobs losses, global demand shrinks, and therefore we end up with deflation not inflation. In fact, Peter is further correct about the likelihood of higher interest rates, yet is again wrong about the impact. Higher interest rates and reduced willingness of banks to lend and businesses/households to borrow will mean lower investment in business and reductions of employment, both leading to deflationary reductions in spending.

Since Credit Serves as Money, and since so much credit was created during the boom, the Credit Contraction is Deflationary.

Since the USD denominates the vast majority of global debt, there is a growing shortage of USDs to pay back the debt. This has been forestalled during this bear market rally. But it's the same for Japan. The Yen carry trade spewed out lots of yen which have to repaid, and in a credit contraction environment the Yen has stayed even or appreciated against most currencies and commodities. Japan's lesson for us is Deflation is the outcome of these Peak Credit busts

China's stats are cooked and the Chinese themselves are mocking their government as they have a horrible jobs situation and no profitable opportunities for investment.

Official says China's jobless situation 'very grave' despite improving economy
http://www.latimes.com/business/nationworld/wire/sns-ap-as-china-unemplo...

China’s growth figures fail to add up
http://www.ft.com/cms/s/0/0ec404fc-8120-11de-92e7-00144feabdc0.html?ftca...

The current SP500 PE ratio is 760 based on reported earnings and 24 based on operating earnings. When the stock market crashes probably sometime in Fall or late Winter, there will be a flight to safety again that will be even more intense. The core currencies as well as gold will be the destination of all semi-periphery currencies.

The currencies of the periphery are of countries which compete against each other to exploit their low-wage labor sell to the core. BRIC, et al have nowhere enough market liquidity or demand depth to decouple without a world war and several epic civil wars preceding the decoupling that we all would like to see.

Chatter about a new global currency is overblown
http://www.ft.com/cms/s/0/8893be10-7c6d-11de-a7bf-00144feabdc0.html

USD, YEN, EUR and Gold will do fine, all others will be in pain.

The only way we will see decoupling is via a World Wide Wage and a coordinated upward valuation of periphery currencies.

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Peter Schiff On The Phony US Economy

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