Note: We first want to announce that we are changing
our approach to this blog a bit. Now and in the future, we intend to
write shorter weekly posts with more focus. We need to claw back
some time from the longer weekly posts so that we can invest that
time into a tosoc book and other projects. The intent is that these
shorter posts will have more in them than updates but less than in
our previous efforts. Occasionally we may revert to our previous
style in the attempt to tie things together.
----
Today let us talk about Peter D. Schiff, CEO of the
broker-dealer Euro Pacific Capital Inc., and his book The Real
Crash. As we said about Meredith Whitney in Deer
in the Headlights II, we generally like his descriptions (with reservations) but are
not impressed with his prescriptions. First, regarding his
descriptions, he sees things exclusively from the wrong side of
capitalism. Also, his view is too narrow.
For example, he thinks that borrowing to produce things
is always good while borrowing to consume is always bad. As we have
pointed out before, however, consumption has to match production if
production is to be done at a profit. It can be very bad to borrow
in order to produce things that no one can buy or wants to buy. His view is far too simplistic.
He also thinks that reducing U.S. consumption and
paying off debt with the savings would be a good thing. It would be
good for the worldwide rich, yes. It would create a depression for
the U.S. poor, however. It might be catastrophic for the worldwide
poor. The trouble is that U.S. consumption supports about 17 percent
of the worldwide GDP. If the U.S. decreases consumption to any
signficant extent, a billion people could be threatened with
starvation. The fact is that the world badly needs to keep U.S.
consumers employed and spending, for the time being at least. That
is why there is almost no chance of Mr. Schiff's dollar
hyperinflation in the near future. The world will continue to buy
U.S. debt because it has to.
Mr. Schiff presents a rather unsophisticated view of
government debt as well. He compares it to corporate and even
individual debt. He also sees it as bad debt to finance consumption
rather than good debt to finance production. He is incorrect.
Sovereign government debt of currency-printing nations is quite
different. The primary purpose is control of the money supply and
interest rates. Governments need large and active bond markets so
that they can buy and sell in them, either printing money and
increasing the money supply (buying bonds) or decreasing the money
supply (selling bonds). Paying off the debt is generally not
especially important.
Rather than the debt itself, the issue is servicing the
debt. Can the nation keep up on its debt payments?
Regarding Mr. Schiff's prescriptions to cure our
financial ills, his plan is basically to bring on economic
catastrophe. Decrease consumer spending, increase savings, and pay
off debt. He does not emphasize these aspects, but it means
deflation, lower wages, and a massive increase in U.S. unemployment.
After which, he assures us, the economy will "heal itself."
He thinks austerity is needed. What it really means is more poverty
for those who are already poor.
A rich man rode his horse into a swamp one day. He got
off, looked around at the mess he was in, and exclaimed, "Damned
horse!" That is how Mr. Schiff sounds to those of us on the other side of
capitalism.
We do not need to be ridden into another economic
swamp. What we need is partnership, not domination. We need
currencies and markets that suit us and are controlled by us, not one
currency and one market dominated by the rich. Competing directly
with the rich is a loser's game. The better way to deal with them is
collectively.
The way capitalism
should be.
Socialism for the
socialists and capitalism for the capitalists.
TheOtherSideOfCapitalism
(admin@tosoc.org)
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© 2013 TheOtherSideOfCapitalism
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