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
This morning many on Wall Street were stunned by the big fat zero put up by the August jobs report, the worst showing in 11 months. The data convinced many previously optimistic economists that the United States will slip back into recession. I believe that we have been in one giant recession all along that was only temporarily interrupted by trillions of useless and destructive deficit and stimulus spending. Unfortunately, the August numbers will increase the talk of government efforts to stimulate the economy.
But while President Obama prepares to unveil a new plan for the Federal Government to create jobs, evidence is rapidly piling up on how his Administration is actively destroying jobs with stunning efficiency. Recent examples of this trend are enough to make anyone with even a casual respect for America’s former economic prowess hang their head in disgust.
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.
On Monday, August 15, billionaire Warren Buffett argued in an op-ed for the The New York Times that his taxes should be raised. He claimed that giving the Federal State more of his money would be a good thing.
We disagree. We think Mr. Buffett’s investments do more social good than his taxes do. Here’s why…
None of Mr. Buffett’s companies use force to compel people to do business with them, but everything The States does relies on coercion. This automatically makes Mr. Buffett’s investments better than his tax payments. In addition….
Mr. Buffett’s companies must serve their customers, or go bankrupt. By contrast, Statist programs almost always receive increased budgets when they fail. Thus, businesses have an incentive to use resources wisely, while The State has incentives to waste resources. This is why money spent by The Coercive Sector (The State) tends to have less social utility than money spent by The Voluntary Sector (businesses and charities).
In short, businesses tend to be pro-social because they serve society, while The State tends to be anti-social, because it’s wasteful and coercive.
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 Michael Pento, Senior Economist at Euro Pacific Capital (www.europac.net)
Paul Krugman sounded the war cry this Sunday on Fareed Zakaria’s program Global Public Square. After all, he asserted, only spending equivalent to another World War could lead us back to prosperity. That, and a healthy dose of inflation.
Krugman argued that inflation would address our debt problem by reducing our bill in current dollar terms and that the Second World War was a giant stimulus plan that actually worked. Thankfully, he added the refrain, “Hopefully we don’t need a world war to get there,” but I sensed a tinge of regret in his voice. After all, the Keynesian economist’s favorite pastime is seeing people waste their lives digging holes in the ground or sacrifice their lives in war. Both acts create economic growth according to the topsy-turvy logic of men like Krugman.
The truth is that wars are a miserable misallocation of capital and usually leave financial ruin in their wake. The US did not boom in the ’50s because we fought World War II, but because we resoundingly won. It was the byproduct of having an unscathed manufacturing base, solid infrastructure, an intact military, most of the world’s gold, and the only reserve currency.
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
This week’s wild actions on Wall Street should serve as a stark reminder that few investors have any clue as to what is really going on beneath the surface of America’s troubled economy. But this week did bring startling clarity on at least one front. In its August policy statement the Federal Reserve took the highly unusual step of putting a specific time frame for the continuation of its near zero interest rate policy.
Moving past the previously uncertain pronouncements that they would “keep interest rates low for an extended period,” the Fed now tells us that rates will not budge from rock bottom for at least two years. Although the markets rallied on the news (at least for a few minutes) in reality the policy will inflict untold harm on the U.S. economy. The move was so dangerous and misguided that three members of the Fed’s Open Market Committee actually voted against it. This level of dissent within the Fed hasn’t been seen for years.
Many economists have short-sightedly concluded that ultra low interest rates are a sure fire way to spur economic growth. The easier and cheaper it is to borrow, they argue, the more likely business and consumers are to spend. And because spending spurs growth, in their calculation, low rates are always good. But, as is typical, they have it backwards.
by John Browne, Senior Market Strategist at Euro Pacific Capital
Last week Fed Chairman Bernanke raised eyebrows and denied history when he asserted in front of Congress that gold doesn’t qualify as money. Yesterday he took the unprecedented step of announcing that the Federal Reserve would keep interest rates near zero for at least the next two years. In very short order thereafter it required much more of the money that he believes in (U.S. dollars) to buy the money that he doesn’t believe in (gold).
In any event, it was beyond unusual for the Fed to make such an explicit time commitment on monetary policy. To underscore this fact, three voting members of the Federal Open Market Committee came out against the policy. Such dissent within the Fed’s ranks has not been seen in decades. But Bernanke’s shameless appeasement of market fears did interrupt, if only for a few hours, the free fall on Wall Street. Wiser investors, understanding how a more activist Federal Reserve will destroy the value of the dollar, moved to gold, pushing the metal up to north of $1,750 per ounce.
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.
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 www.schiffradio.com
by John Browne, Senior Market Strategist at Euro Pacific Capital
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