On Tuesday, September 13, Peter Schiff, the CEO of Euro Pacific Capital, www.europac.net will testify before the House of Representatives Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending. The hearing entitled, “Take Two: The President’s Proposal to Stimulate the Economy and Create Jobs” will examine federal job creation efforts. Mr. Schiff, author of many best-selling books including “How an Economy Grows and Why it Crashes” is well known for his views on how federal regulatory activism and irresponsible monetary and fiscal policy is actively destroying jobs in America. The following statement from Mr. Schiff will be read into the Congressional Record this morning. Within a few days, video of the hearings will be available on the Committee’s website. Please feel free to excerpt or repost with the proper attribution and all links included.
How the Government Can Create Jobs
Testimony by Peter D. Schiff
Offered to the House Sub-Committee on Government Reform and Stimulus Oversight
September 13, 2011
Mr. Chairman, Mr. Ranking member, and all distinguished members of this panel. Thank you for inviting me here today to offer my opinions as to how the government can help the American economy recover from the worst crisis in living memory.
Despite the understandable human tendency to help others, government spending cannot be a net creator of jobs. Indeed many efforts currently under consideration by the Administration and Congress will actively destroy jobs. These initiatives must stop. While it is easy to see how a deficit-financed government program can lead to the creation of a specific job, it is much harder to see how other jobs are destroyed by the diversion of capital and resources. It is also difficult to see how the bigger budget deficits sap the economy of vitality, destroying jobs in the process.
In a free market jobs are created by profit seeking businesses with access to capital. Unfortunately Government taxes and regulation diminish profits, and deficit spending and artificially low interest rates inhibit capital formation. As a result unemployment remains high, and will likely continue to rise until policies are reversed.
This evening President Obama presented his latest plan to “stimulate” the United States economy; this time, to the tune of $447 billion. This stimulus is to be completely paid for by undefined savings at a future, undetermined date. By now, as a nation, we’re all probably quite numb to this and a proposal of this nature doesn’t elicit the same level of anxiety and fear that it once may have. However, what should really frighten each of us is the outrageous question posed by Mr. Obama in defense of his proposal:
“What kind of country would this be if this Chamber had voted down Social Security or Medicare just because it violated some rigid idea about what government could or could not do?“
Indeed, what kind of a country would this be if government felt constrained by the Constitution and if unpayable and unimaginable debts had not been created as the result of unkeepable promises and political escapades designed to curry favor.
Maybe it’s time to remind Mr. Obama and our elected representatives that they each took an oath, “to uphold and to defend the Constitution.” Or, were those simply empty promises or political expediencies?
The markets are going through another sell-off phase, yet the traditional notions of a ‘safe haven’ are changing. No longer is the US dollar the default shelter; instead, gold, the Swiss franc, and the Japanese yen are the preferred assets.
All three of these havens – gold, francs, and yen – have been surging upward this month. Two of them, however, are being actively devalued by central banks desperately (and foolishly) trying to curtail appreciation. The Swiss and Japanese are enlisting both policy measures and all the banker-speak they can muster to stem the tide of investment flows into their currencies.
The game is Last Haven Standing, and Spielberg has already acquired the movie rights.
Ron Paul appeared for a friendly interview with Lou Dobbs last night on Fox Business. They discuss economics and the debt. At the end Dobbs seems to begin to say.. ‘that’s why we need you… [as POTUS]‘, then half-way through realizes he is supposed to be unbiased and changes it up a bit though the implication is still there.
Nice interview, though I wish Paul would choose more optimistic words when he speaks. All of this “I’m afraid there will be people in the streets like we’ve seen in other countries” talk is worrying Grandma and Grandpa voter out there. It reminds me of my penchant for jokingly yelling “WE ARE ALL GOING TO DIE!” at the top of my lungs while going over the first big drop on a roller-coaster. You know, just for fun. Of course, Ron Paul is being serious and he’s right. I just don’t know if that is earning him the kind of votes he needs to rise even further in the polls.
by John Browne, Senior Market Strategist at Euro Pacific Capital
The basic unwillingness of politicians to face economic and financial realities has caused the United States and European Union to face currency collapse. The politicians are content literally to paper over the problem with massive amounts of newly printed currency. This means that savvy investors, facing major real losses, are turning increasingly to gold. In essence, even though currencies are no longer on a gold standard, they are increasingly being “redeemed” for gold in the marketplace.
For decades, fiscally irresponsible US Administrations have gradually reduced the world’s richest nation, with a currency perceived as ‘good as gold,’ to the position of the largest global debtor, with a debased currency. Furthermore, US stock markets have offered little real return. Indeed, the Dow stands just below 11K, down over 3K points from its all-time high on October 9, 2009. Discounting for inflation shows a loss close to 4K points, or a fall of over 25 percent from its all-time high. Meanwhile, equities in emerging markets have often shown handsome returns.
The recent political wrangling in Washington has damaged the financial credibility of the United States, prompting a long overdue debt downgrade by ratings house Standard & Poor’s. This removes a fundamental pillar supporting the dollar as the global reserve asset of choice.
by Andrew Schiff, Director of Communications and Marketing at Euro Pacific Capital (www.europac.net)
To an extent not fully appreciated by the investing public, financial markets are influenced by human emotion just as much as they are by economic data, corporate earnings, and dividend yields. Of all human motivations, fear is perhaps the most powerful. When people get scared, the “fight or flight” instinct forces us to take action.
Simple dangers prompt simple responses. If we unexpectedly encounter a bear on our driveway, we immediately run into the house and call animal control (or, in the country, grab the shotgun). But it’s harder to know what to do when financial danger stalks the stock market. To be honest, most investors are clueless. Is that really a bear? Is it dangerous? What qualifies as a house?
by Michael Pento, Senior Economist at Euro Pacific Capital (www.europac.net)
The reliance upon the U.S. dollar as the world’s reserve currency and “safe haven” asset has created a perverse, but deeply entrenched, mindset among global investors. In fact, many believe the major financial players have no alternatives to owning U.S. debt and dollars. They argue that the market for U.S. dollars and Treasuries is the only financial pool large enough to handle the massive liquidity that sloshes around the globe on a daily basis. This idea makes a mass exodus from U.S. debt holdings seem impossible. This provides a nice explanation why the U.S. Treasury bonds can rally even while the government openly flirts with default and ratings agencies issue downgrades. But just because an illogical event occurs habitually does not mean it is logical or tenable.
The sophomoric reasoning behind the dollar “exceptionalism” argument is like assuming a stock can never fall unless a significant portion of shareholders decide to sell. In reality, a buyers strike is all that is needed to puncture a market. If the U.S. experienced just one disastrous Treasury auction, prices could nose-dive and yields could skyrocket across the board on all U.S. debt.
But the problem doesn’t just lie with the United States. Investors around the world are finally beginning to understand that central bank’s thirst for creating inflation, in order to keep their banks and governments solvent, will never be quenched.
by Peter Schiff, CEO of Euro Pacific Capital, and host of The Peter Schiff Show, broadcasting live from WSTC Norwalk CT from 10am to noon Eastern time every weekday, and streaming at www.schiffradio.com.
By supposedly compromising to raise the debt ceiling, Congress and the President have now paved the way for ever higher levels of federal spending. Although, the nation was spared the trauma of borrowing restrictions, the actual risk of default existed solely in the minds of Washington politicians. But the real crisis is not, nor has it ever been, the debt ceiling. The crisis is the debt itself. Economic Armageddon would not have resulted from failure to raise the ceiling, but it will come because we succeeded in raising it. This outcome falls along the lines that I had forecast (See my commentary, “Don’t Be Fooled by Political Posturing” from July 9th).
Both parties are now pretending that the promised cuts in spending outweigh the increase in the debt limit. But the $900 billion in identified cuts are spread over a decade and are skewed toward the end of that period. There are an additional $1.4 trillion in cuts that the plan assumes will be identified by a bi-partisan budget committee. But similarly empowered panels in the past have almost never delivered on their mandates.
More importantly, none of these “cuts” are actually binding. There is plenty of time for future Congresses to reverse what was so laboriously agreed to over the past few weeks. My guess is renewed economic weakness will be used to justify ultimate suspension of the cuts. In addition, most of the spending reductions were already scheduled to take effect before this agreement. So what did we really get?
by Michael Pento, Senior Economist at Euro Pacific Capital (www.europac.net)
The debt ceiling debate that has dominated the headlines over the past month has been thoroughly infused with a string of unfortunate misconceptions and a number of blatant deceptions. As a result, the entire process has been mostly hot air. While a recitation of all the errors would be better attempted by a novelist rather than a weekly columnist, I’ll offer my short list.
After having failed utterly to warn investors of the dangers associated with the toxic debt of entities like Enron, Fannie Mae, Freddie Mac, and AIG, as well as the perils of investing in mortgage-backed securities and sovereign debt of various bankrupt countries, the credit ratings agencies (CRAs) have now apparently decided to be more vigilant. Hence, many have offered conspicuous warnings that they may lower U.S. debt ratings if Washington fails to make progress on its fiscal imbalances. But then, just in case anyone was getting the impression that these rating agencies actually cared about fiscal prudence, Moody’s suggested this week that its concerns would be lessened if Washington were to make a deal on the debt. The agency has even suggested that America’s credit could be further improved if Washington would simply eliminate the statutory debt limit altogether. In other words, Moody’s believes that our nation’s problems are more a function of squabbling politicians rather than a chronic, unresolved problem of borrowing more than we can ever hope to repay.
by Peter Schiff, CEO of Euro Pacific Capital, and host of The Peter Schiff Show, broadcasting live from WSTC Norwalk CT from 10am to noon Eastern time every weekday, and streaming at www.schiffradio.com
I have been forecasting with near certainty that QE2 would not be the end of the Fed’s money-printing program. My suspicions were confirmed in both the Fed minutes on Tuesday and Fed Chairman Ben Bernanke’s semi-annual testimony to Congress yesterday. The former laid out the conditions upon which a new round of inflation would be launched, and the latter re-emphasized – in case anyone still doubted – that Mr. Bernanke has no regard for the principles of a sound currency.
Tuesday’s release of the Fed minutes contained the first indication that a third round of quantitative easing (QE3) is being considered. The notes described unanimous agreement that QE2 should be completed, along with the following comment: “depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run.” Since the unemployment situation is deteriorating, and by all accounts will continue to do so, the Fed is essentially pledging to keep the spigot turned on. The committee also decided to look only at current “overall inflation” in making their judgments, as opposed to “inflation trends.” Since new dollars take awhile to circulate around the economy and raise prices, this means the Fed is sure to be too late in tightening once inflation starts to run away, causing more dislocations in the American economy.
Liberty Maven
On Tuesday, September 13, Peter Schiff, the CEO of Euro Pacific Capital, www.europac.net will testify before the House of Representatives Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending. The hearing entitled, “Take Two: The President’s Proposal to Stimulate the Economy and Create Jobs” will examine federal job creation efforts. Mr. Schiff, author of many best-selling books including “How an Economy Grows and Why it Crashes” is well known for his views on how federal regulatory activism and irresponsible monetary and fiscal policy is actively destroying jobs in America. The following statement from Mr. Schiff will be read into the Congressional Record this morning. Within a few days, video of the hearings will be available on the Committee’s website. Please feel free to excerpt or repost with the proper attribution and all links included.
by John Browne, Senior Market Strategist at Euro Pacific Capital
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