A video compilation of various Peter Schiff TV appearances (2002-2009) is available on YouTube. The quality isn’t that great, but the message is pure gold. He’s been saying since 2002 that the US economy would collapse, and he gave solid reasons why it would collapse every time. His messages got more pointed with each appearance, they made sense, and yet he was ridiculed over and over for his opinions by so-called pundits on various TV networks. Ben Stein once said to him: “Sub-prime is a tiny, tiny blip.” I bet he’d like to eat his words now…
In 2004, I wrote an article where I said some of the same things Peter Schiff was saying — namely, that an economy financed by debt would not go on forever, and that we might be headed for another Great Depression. Back in 2004, the real estate market hadn’t even hit its peak, so I based my observations on common sense. I have no education in finance, but I can spot a turd no matter what it’s called.
I wrote then that the slowing US economy was being falsely propped up by the war spending in Iraq, but that wouldn’t last. You see, the government operated under a false assumption. The thought that what pulled us out of the Great Depression — the ramped up spending for WWII — would do it again in modern times. They were wrong. As I also wrote then, the WWII spending paid off: the world wanted American products after the war — they were hungry for them, and the manufacturing economy, which had been making weapons, shifted into making lots of things for export, like cars and clothes and other badly needed things in war-torn countries. Back then, we had a manufacturing economy, and there was real demand for our products.
History unfortunately does not repeat itself. In 2004, things were different. The US had no American products to export (unless you count weapons of war). It had moved most of its manufacturing overseas, leaving little to make at home. It was going into massive debt to finance a war that would (among other doubtful goals) stimulate a slowing economy, yet, from the get-go, they were not building American goodwill overseas in order to stimulate demand for American products. Even if they had done that, there were no American products to export, since we did not have a manufacturing economy any more.
A quick aside: some were saying a while back that the US is in the information services business — you know, IT, expertise, analysis, consulting, research, etc. — white collar stuff. I don’t buy it. For one thing, not everyone in the US can hold a white collar job. There are a finite number of people out of the US population (percentage-wise) that can do those jobs, and there are a finite number of such jobs available. To make things worse, information products lose their market value fast in times of economic hardship: when you need money to buy bread, you aren’t going to worry about knowledge; your stomach comes first. Also in the “things get worse” department, India and China are only two of the countries that can steal a large number of our information jobs as more of their people are educated. Don’t forget how many Indians work for Microsoft and other tech companies, and how many Chinese are involved in research. Unfortunately real products that fulfill real, tangible needs are still the king, because they are always in demand if they’re quality goods.
Okay, back to the war. It took people’s minds off the economy until the real estate market ramped up, and when that bubble burst, the whole ugly truth came to life. We had no economy to speak of, it was all propped up by debt, and all that debt was crashing down on us, as some, including myself, predicted. In my article from 2004, I said the following:
… unless we get someone in the White House who is willing to address the problem of debt head-on, I think our country is headed for certain disaster.
Fast forward to 2008. At the end of September of that year, I laid down my thoughts about the impending economic crisis. I was saying pretty much the same things I said now, except I approached the problem from a different angle. You see, we hadn’t yet elected Obama. Later that year, my wife and I, along with many other people, voted for him, because he was better than the alternative, and we hoped he’d do some good.
While the jury is out on that last part, and part of me says I should just sit back and wait to see what he does with his presidency, part of me goes back to the problem of debt and wonders if he’s tackled it head-on, like it needs to be handled. Unfortunately, he’s headed in the very opposite direction. He’s going to put our country into yet more debt in order to keep stimulating the economy. All this stimulating makes me wonder what status quo the government hopes to achieve. Just what state of the economy do we want to return to? Where do we want to go after we’ve spent all of that money? These words from Jim Kunstler say it best:
“… to what state of affairs do we expect to recover? If the answer is a return to an economy based on building ever more suburban sprawl, on credit card over-spending, on routine securitized debt shenanigans in banking, and on consistently lying to ourselves about what reality demands of us, then we are a mortally deluded nation.”
So, we’ve been going into more and more debt, for years and years, propping up a sick economy that has no more manufacturing backbone to stand on its own, and we’ve never taken our medicine. The US economy is like a sick man who’s hyped up on speed and other crap to keep from crashing into a bed and going through a proper recovery from a serious bout of the flu. It can’t go on forever. It has to at some point end. It doesn’t make sense otherwise. Like I said in an article from February of this year, there will be an ugly third act, where the fat lady will sing and the curtains will come down, and believe you me, it’s going to be a doozy.
Will it have to do with the severe de-valuing of the dollar and cause it to be replaced as the world reserve currency? Possibly, since some countries out there, like China and Russia, are already calling for a new global currency. I think there will be more unrest beyond the dollar debacle. And who knows, perhaps behind the scenes, that was the plan all along: bring on a crisis where bargains are to be had for those with the money to get them, and the sort of economic unrest that would make it easier to move certain pieces of the big puzzle into their place.