As we’ve mentioned quite a few times here at Liberty Maven, Peter Schiff is one, along with Ron Paul and other Austrian Economists, who accurately predicted the current economic crisis years ago. Here’s an amusing little video made up of video clips from 2006 and 2007 in which Peter Schiff makes his dire predictions and warns people away from stocks (especially bank stocks) while people like Arthur Laffer and Ben Stein were lauding the “stable financials” and predicting a rise in housing prices and the DOW at 16,000 in 2008. One even offered a BUY recommendation for Washington Mutual!
Yesterday, Secretary of the Treasury Henry Paulson published an Op-Ed piece in the New York Times. It was filled with doublespeak, platitudes, lies, and incredible ignorance. Chris Martenson parsed Paulson’s words, paragraph by paragraph, to shed some truth of the situation. Here’s a snippet:
[Paulson writes:]
I have always said that the decline in the housing market is at the root of the economic downturn and our financial market stress. And the economy, as it slows further, threatens to prolong this decline, as well as the stress on our financial institutions and financial markets.
My Comment: Um, no, Hank, sorry, this is not true. Here are some recent quotes from you:
April 20, 2007 — “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.”
July 26, 2007 — “I don’t think it [the subprime mess] poses any threat to the overall economy.”
This article by Chris Martenson is quite revealing, even entertaining (if you’re into black comedy). Read the whole thing here.
Just about any new regulatory law comes with unintended consequences. Even though this “confiscation” will be painted with a positive brush by those in government when/if it shows up within a bill being debated in Congress, one has to wonder if it will “scare” those of us who lack any trust in the government into taking early IRA distributions where possible. I would guess there may be a run on such distributions even with the high penalty imposed on early withdrawals. It is unclear if such withdrawals would be widespread enough to constitute a “run” on them, but the potential is certainly there.
We are barreling toward socialism at an alarming rate, and every day I become more and more afraid for the future of our country. Teresa Ghilarducci is an economist at the New School for Social Research in New York who wrote a policy paper on the subject of retirement account, and followed that up with a book entitled, When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them. She was called to testify before Congress on her harebrained scheme to have the federal government take over all our private 401K plans (which have historically realized at least 10% annually, on average) and “guarantee” a rate of return of 3% over inflation. From ABC News:
Here are the basics of her proposed Guaranteed Retirement Accounts:
Employees would make mandatory contributions equal to at least 5 percent of the earnings. Workers could contribute higher amounts if they wish.
Those contributions would be offset by a $600 federal tax credit each participant would receive.
As with a 401(k) plan, workers would have individual accounts they could track. The balance of each account would depend on each worker’s contributions and income level.
The Social Security Administration would handle account management, and the Thrift Savings Plan — a well-regarded retirement plan for federal employees — would manage the money.
Participants would be guaranteed a fixed rate of return that exceeds inflation by 3 percent. For instance, if inflation stood at 2 percent, the worker would earn 5 percent; if inflation reached 3.5 percent, the worker would earn 6.5 percent. Participants could receive an inflation-beating return above 3 percent if the government’s investment returns were high enough.
At retirement, participants’ account balances would be converted into a lifetime stream of income that adjusts for inflation. There would be options to take partial lump sum payments, opt for lower payments in return for survivor benefits and, upon death, leave a portion of a financial account balance.
The intent of the plan is not to replace Social Security. Rather, Guaranteed Savings Accounts would supplement Social Security, Ghilarducci said.
Given the government’s horrendous track record (i.e. Social Security, Fannie/Freddie, Medicare, Medicaid, etc.) it’s preposterous to think the government would handle your 401K money wisely.
NEW YORK – Wall Street headed for another precipitous drop Friday as fears of a punishing global recession stirred panic among investors and sent world financial markets into a tailspin. The Dow Jones industrial average futures fell as much as 550 points, triggering a freeze in selling.
Hmmm… Apparently government intervention only prolongs the inevitable and makes it worse. Sure it’s too early to know for sure, but things are looking bleaker by the day and Ron Paul is looking more and more like a genius by the minute.
Turn off your stock market tickers and your favorite financial news channel and go watch Chris Martenson’s Crash Course instead. You’ll thank yourself later.
Vern McKinley, at Cato.org, suggests that all the so called “tools” in the recently passed bailout legislation have implications all liberty seeking free marketeers should be concerned about. He steps through some of the more talked about provisions in the rescue legislation and examines what their implications are in the real world.
…a primary source for depositor fears has been their effort to acquire a number of what they have called “tools” to address the crisis, including the power to make up to $700 billion of asset purchases. The tools that Paulson and Bernanke have sought have had one characteristic in common: a lack of confidence in markets to resolve the imbalances caused by government policy in the financial markets. In overpromising the soothing effects of one tool, Paulson and Bernanke have then moved on to securing the next tool.
McKinley looks at the implications of other tools such as raising the FDIC insurance limit, the allowance for the FDIC to borrow unlimited funds from the Treasury, and Treasury injecting capital into the banks. He concludes with what we’ve learned from the bailout fiasco.
The big lesson here is that making major legislative changes in times of crisis leads to bad policy (recent examples in the financial sector are the Patriot Act and Sarbanes-Oxley). These “tools” are a euphemism for extraordinary powers that would not be considered in a calm market. They are largely preemptive, and aimed at avoiding bank failures.
I couldn’t agree more. Vern McKinley lives in my district and ran against the incumbent big spending Congressman Frank Wolf in the GOP primary earlier this year. McKinley didn’t win, unfortunately. If he were representing me in Congress during the bailout debate I wouldn’t have had to send emails and make phone calls to him pleading to vote against it. I would have already known that his vote would be an emphatic “NO”, unlike my current so called representative.
Many people, especially those on the left, such as Barack Obama and his disciples, are insisting that it was deregulation (or lack of regulation) that contributed heavily to the current economic woes. The main problem with that theory is that there has been no relevant deregulation in the last 25 years. The failing banking industry has been heavily regulated, in fact. John Stossel says that deregulation wasn’t the problem, and reregulation isn’t the solution:
“It’s deregulation’s fault!”
That’s the conventional explanation for the economic mess.
Barack Obama said, “This is a final verdict on the failed economic policies of the last eight years … that essentially said that we should strip away regulations, consumer protections, let the market run wild, and prosperity would rain down on all of us.”
Is deregulation is the culprit? It can’t be. There was no relevant deregulation in the last 25 years. Meanwhile, highly regulated institutions eagerly bought risky government-guaranteed mortgages, stimulating excessive housing construction and an unsustainable price bubble.
Deregulation wasn’t the problem, and reregulation isn’t the solution.
It’s intuitive to assume that regulation prevents problems, but it’s rarely true. First, how would regulators know what to do? Leaving aside the bias they might have and the brutal fact that regulation is physical force, how can a small group of people understand the workings of a market sufficiently to regulate sensibly? Markets, especially financial markets, are far more complicated than any mind can grasp. They consist of many millions of participants making countless decisions on the basis of unarticulated know-how and intuition. To attempt to regulate such activity requires knowledge no one can possess.
I’ve been a big fan of Peter Schiff ever since he endorsed Ron Paul early in the primary campaign. The Washington Post has published an article by him that quickly, clearly, and directly sums up the United States economic situation. As I read it I could not help but nod my head in agreement with each passing sentence. If you read nothing else regarding our financial situation please read this.
Amid the chaos of recent days, as the federal government has taken gargantuan steps to stabilize the financial markets, realigning the U.S. economic system in the process, comes a nearly universal consensus: This crisis resulted from government reluctance to regulate the unbridled greed of Wall Street. Many economists and market participants who were formerly averse to government interference agree that a more robust regulatory framework must be constructed to cage the destructive forces of capitalism.
For the political left, which has long championed the need for such limits, this crisis is the opportunity of a lifetime.
Absent from such conclusions is the central role the government played in creating the crisis. Yes, many Wall Street leaders were irresponsible, and they should pay. But they were playing the distorted hand dealt them by government policies. Our leaders irrationally promoted home-buying, discouraged savings, and recklessly encouraged borrowing and lending, which together undermined our markets.
On Chris Martenson’s blog (free registration required), Chris picks apart the Joint Statement by the Treasury, Federal Reserve and FDIC published today. He manages to cut through the blah blah blah and point out the Orwellian events taking place: further maniplation of interest rates, and changes in regulation that expand the FDIC and further distort the marketplace:
This is another gross marketplace distortion of the highest order. It means that sharp investors will now scramble for the highest yielding junk debt of the most troubled institutions so as to grab all that extra free yield. Suffice it to say that moral hazard has just been kicked up a notch. Instead of poorly performing banks being shunned, as they should be, they are now advanced to the front of the pack by virtue of offering a higher “risk free” yield than their more cautious competitors.
But the real kicker was that tag line of “and their holding companies”. *Gulp*. Unless there’s some hidden details saying otherwise, this means that the senior debt of any holding company of an insured bank is now covered by the FDIC. Look for crappy banks to suddenly be highly desirable acquisition targets of non-related companies seeking a government subsidy for their own senior debt offerings.
As mentioned previously, Chris Martenson’s Crash Course is an excellent way to get a much deeper understand of how our monetary system works in about three hours. Broken up into twenty short videos, Martenson explains things in easy-to-understand terms. We cannot recommend it enough.
If you want to protect yourself from the inevitable dollar collapse then gold and silver should be on your investment shopping list. Well, it seems that way. Don’t try to look at gold as a short term trade to make a few quick bucks, but rather an emergency rip cord to utilize as the overall economy freefalls to the ground.
Some suggest that we are in a deflationary period and gold is going to head down towards $600/oz. Others suggest that gold is an extreme buy at current levels with hyperinflation on the near horizon, suggesting it could go as high as $2500/oz. I’m no expert (far from it), but doesn’t it make sense to just own a percentage of gold right now in any investment portfolio?
Think of it like this. If you have $100,000. You put 25% into gold. You hold 50% in cash and 25% in other investment vehicles. If your dollars become worthless that means 75% of your portfolio becomes worthless. However, if gold does go to $2500/oz which could happen in such an environment you’d have over $60,000 worth of gold. Sure, your overall portfolio drops by 40%, but you’d still have your $60K soft landing.
Don’t wait for the government to bail you out. Bail yourself out with gold. For a very good list of 5 ways to own gold check out the Daily Reckoning’s white paper, “The 5 Best Ways to invest in gold“. Please keep in mind, this is a simplistic view and I’m no financial expert so take this with a grain of salt. It just seems it is what should be common sense during times like these.
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