Liberty Maven

by Peter Schiff, president of Euro Pacific Capital and author of Crash Proof 2.0: How to Profit from the Economic Collapse

Don’t Bet on a Recovery

It is astounding how many economists, government officials, and Wall Street strategists construe the current economic conditions as evidence of a bona fide recovery. It is a testament to the power of the rose colored glasses handed out by our nation’s leading universities that such a feeling could be widely held despite the clear and present danger that compounds daily. The myopia leads us to enact policies that actually exacerbate our problems. The “remedies” are postponing, perhaps indefinitely, a true recovery.

The oracles who have described the nature of this imminent recovery do so based on their conviction that consumer spending is slowly returning to levels that existed prior to the recession. New data released today seems to support this view, with consumer spending up 0.5% in January.

However, missing from their analysis is any plausible explanation as to why consumers will be able to sustain such spending given the plunge in income and credit, and the lack of available savings. In fact, the same January spending report showed that personal income increased by only 0.1%, while the savings rate slowed to the smallest since 2008.

I would challenge those who fantasize about a consumer-led recovery to describe where the spending money will come from.  Most consumers are tapped out, millions are unemployed, and home equity has been wiped out.  The only reasonable thing for them to do is to pay down debt and sock away as much money as possible to rebuild their savings.

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