Liberty Maven

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

As attention focuses intently on the negotiations to raise the debt ceiling, House Republicans have made a great show of drawing a line in the fiscal sand. They claim that they will not vote for any deal that includes tax increases to narrow the budget deficit. But we all know how the game works in Washington. With the 2012 elections looming the Republican bluster is merely a bargaining chip that they will quickly toss into the pot when they sense a political victory. In fact there are signs that such a compromise is already underway.

House Republicans already have the power to avoid tax hikes and force significant spending cuts. All they have to do is refuse to raise the debt ceiling under any circumstances. That’s it. At that point the only discussion would be where to find spending to cut.

But Republicans want to raise the debt ceiling just as much as Democrats, they just want to gain political advantage in the process. They have widely accepted the Democrat stalking horse that a failure to raise the ceiling will lead directly to economic Armageddon. No party wants to be held responsible for such an outcome. Even if the expected Armageddon does not come, the Republicans will be blamed for any problems that follow a no vote on the increase, regardless of the true cause. As a deal is in everyone’s political interest, I am convinced it will happen.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

Most people, provided they have a minimum of experience, know that taking a bone from a dog is a risky proposition. In terms of political power, few dogs are bigger than the American voting public. Taking away, or even threatening to take away, the major entitlements to which they have become accustomed could expose politicians to a mauling at election time. As the American leadership begins to grapple with very large issues of entitlement reform in “sacred” programs such as Medicare and Social Security, many may recoil from the task once the fangs begin flashing.

According to polls, 77% of Americans feel the U.S. Government must cut spending. But when it comes to specifics, the support melts away very fast. Until recently, the strongly Republican 26th District of upstate New York had elected only three Democrats since the Civil War. But in a special election held this month (to replace the resigned Republican Chris Lee) the district fell to the Democratic column for the fourth time in 150 years. Many have theorized that the political upset was based on fears that the budget plan put forward by House Budget Committee Chairman Paul Ryan would restrict entitlements, particularly Medicare.

If there is any truth to this, it shows how difficult the process may be for politicians who want to seriously trim the Federal budget. But any glance at the enormity of the problem should provide the necessary courage. This assumes, of course, that there is any courage at all left in Washington.

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Quote of the Day: “History clearly shows the government that stimulates the best, taxes, spends, and intrudes the least. In particular, the lesson from 1945-47 is that a sharp reduction in government spending frees up assets for productive use and leads to renewed growth.” – Economists Jason E. Taylor and Richard K. Vedder

On May 31, the House rejected President Obama’s request to raise the debt limit with no spending cuts. In addition to every Republican, 46% of Democrats opposed this bill.

* This demonstrates the power of polls, which shows even a substantial percentage of Democrats oppose raising the debt ceiling
* But it also demonstrate the power of your RELENTLESS PRESSURE on Congress

More and more Democrats realize the U.S. is on an unsustainable path and that reforms must be implemented NOW instead of putting them off any longer.

The vote was good news, but this is only the beginning of the fight. WE ARE HOLDING THE LINE . . .

NO increase on the debt ceiling.

Unless you tell your Representative and Senators where you stand, they may be tempted to cut a deal which will raise the debt limit while making only symbolic and marginal spending cuts.

Both Democrats and Republicans need to learn from history, particularly the Democratic Truman Administration. That’s why I sent this letter to Congress, from which you may borrow or copy . . . Read More »

by Peter Schiff

My readers are familiar with my forecast that the US dollar is in terminal decline. America is tragically bankrupt, unable to pay its lenders without printing the dollars to do so, and enmeshed in an economic depression. The clock is ticking until the dollar faces a crisis of confidence like every other bubble before it. The key difference between this collapse and, say, the bursting of the housing bubble is that the US dollar is the backbone of the global economy. Its conflagration will leave a vacuum that needs to be filled.

Mainstream commentators often discuss three main contenders for the role: the euro, the yen, or China’s RMB (known colloquially as the “yuan”). These other currencies, however, each suffer from a critical flaw that makes them unready to carry the reserve currency role in time for the dollar’s collapse. When it comes to fiat alternatives, it appears the world would be going out of the frying pan and into the fire.

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Quote of the Day: “I have always believed that government had a limited capacity to do good and a virtually infinite capacity to do harm…” — Neil Hamilton, Member of Parliament in the United Kingdom (Source: House of Commons debates, 8 February 1994)

Earlier this year, we thought we’d be willing to trade an increase in the debt ceiling for something of lasting value — like a balanced budget amendment. We now think that’s a strategic mistake.

The real strategic opportunity lies in the debt ceiling itself. As long as we maintain THAT, then nothing else needs to be done to balance the budget.

We’ve started a permanent new campaign to promote this idea called, “Cap the Debt.”

Here’s what I wrote in my first letter to Congress using this new campaign . . . Read More »

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.

Today the U.S. government officially borrowed beyond its $14.29 trillion statutory debt limit. And even though the Obama administration has assured us that accounting gimmickry will allow the government to borrow for another few months, the breach has given seeming urgency to Congressional negotiations to raise the debt ceiling. Republicans are making a great show of acting tough by linking their “yes” votes with promises for future budget cuts (that could even slow the rate of debt increases at some uncertain point in the future). But as we go through the process, many novice observers may wonder why we have a debt ceiling at all when our government has never shown the slightest inclination to respect its prior self-imposed limits.

The ceiling was first imposed in 1917 as part of a deal that passed the Liberty Bond Act that funded America’s entry into the First World War. To make it easy for the Treasury to sell those bonds, Congress also amended the Federal Reserve Act to allow the Fed to hold government bonds as collateral. But given the potential for unchecked Federal deficits, Congress sought to limit taxpayer exposure to $11.5 billion.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

When Fed Chairmen speak, the public is supposed to listen; and, historically, they have. Yet, Chairman Bernanke’s remarks at his historic first press conference were met by a tidal wave of skepticism. Although many of the mainstream outlets, especially those lucky enough to be granted question slots, characterized his performance as “serious” and “masterful,” most rank-and-file Americans were left with a very different impression.

Any casual glance at the broad internet coverage of the event shows that the public is deeply skeptical of Mr. Bernanke and the actions he is taking. If that skepticism runs more than skin-deep, it could herald a fundamental change in American politics and a restoration of sound finance in America. Already politicians seem to be taking notice.

The struggle over raising the national debt ceiling has prompted many members of Congress to talk about a negotiated and practical plan to slash government spending. The early posturing has begun. While much of it is merely window dressing, as politicians continue to escalate their rhetoric, they will eventually be forced to actually do something to make good on their promises. Their mouths are writing checks that their budget proposals may have to cash.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

Despite loud huzzahs from a variety of boosters who proclaimed that Chairman Bernanke spoke with gravitas and wisdom at the first ever Federal Reserve press conference, the wider investing public clearly saw the performance as unconvincing. During and immediately after the proceedings the prices of gold and silver rose strongly to new highs as the U.S. dollar plummeted. The affair seemed to solidify the understanding that Bernanke and his cohorts have no intention whatsoever to reverse the current trend of inflation and a weakening dollar.

With all the preliminaries swept away, it appears that the great dollar slide that we have long feared will not be interrupted. In the last year alone, the dollar has fallen 25 per cent against the Swiss Franc, (the gold standard of fiat currencies) – with one quarter of that decline coming since the beginning of April alone. Against gold itself (the gold standard of all forms of money), the decline has been even worse, 31 per cent so far this year, and 8 per cent this month.

Ominously, the dollar index (the broadest measure of dollar strength) is just a percentage point or two above the all time lows that it set before the financial panic of 2008 sent spooked investors into the apparent safety of America’s deep and liquid Treasury market. It appears that spell has now been fully broken.

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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

The only thing more ridiculous than S&P’s too little too late semi-downgrade of U.S. sovereign debt was the market’s severe reaction to the announcement. Has S&P really added anything to the debate that wasn’t already widely known? In any event, S&P’s statement amounts to a wake up call to anyone who has somehow managed to sleepwalk through the unprecedented debt explosion of the last few years.

Given S&P’s concerns that Congress will fail to address its long-term fiscal problems, on what basis can it conclude that the U.S. deserves its AAA credit rating? The highest possible rating should be reserved for fiscally responsible nations where the fiscal outlook is crystal clear. If S&P has genuine concerns that the U.S. will not deal with its out of control deficits, the AAA rating should be reduced right now.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

While the world’s attention has been focused on the physical destruction wrought by the Japanese earthquake and tsunami, the desperate attempts to contain the fallout from the shattered Fukushima Daiichi plant, and the daunting problems that Japan faces in rebuilding its infrastructure, few have truly illustrated how long-lasting and widespread the radiation’s effects may be. There has also been little mention of how large radiological events affect economies of countries outside the immediate fallout zone. In truth, the disaster could make as much of an impact on investors in New York, London, or Sao Paolo as it makes on an investor in Tokyo.

The world’s most significant nuclear accident occurred 25 years ago at Chernobyl, Ukraine. Although its effects are now well-documented, many forget how thoroughly the damage was covered up at the time. To avoid panic, the Soviet authorities grossly downplayed the risks to those living near the plant, as well as those who lived hundreds, and even thousands, of miles away. In the months that followed, high levels of radiation were detected as far away as Scotland!

While we can hope that the present-day Japanese are more prone to candor than the Cold War-era Soviets, a series of botched and contradictory communications from Tokyo Electric Power, the operator of the plant, and the Japanese government have given us reasons to worry.

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