Liberty Maven

by Peter Schiff, president of Euro Pacific Capital, and host of The Peter Schiff Show, broadcasting live from WSTC Norwalk CT from 6pm – 8pm Eastern time every weeknight, and streaming at www.schiffradio.com

This week Washington displayed the kind of “bipartisanship” that will bankrupt our country and wreck our currency.  Coming at a time when both parties say they want to address our long-term fiscal imbalances, the compromise extension of the Bush era tax cuts should be a wake-up call to anyone who somehow expected the American leadership to ever have an “adult conversation” about the country’s long term economic health.

The administration and Congress are prepared to take the bold political move of not raising some taxes while significantly lowering others and greatly expanding Federal benefits. The entire cost of the $900 billion package will be financed entirely by adding to the national debt. Talk about tough love. While other countries consider ways to live within their means, Washington is intent on devising ever more creative ways to delay the day of reckoning.

While Democrats wanted more government spending,they were unwilling to vote for broad-based middle class tax increases to pay for it.  Instead they want what Democrats have always wanted: higher taxes on the “rich.” Republicans want lower taxes, but as has become typical, they were unwilling to cut government spending to enable it.By running up the deficit both sides get what they want without any political sacrifice.Sure, they break their campaign promise to cut the deficit, but the political fallout that results will be far less costly than voting for the tax hikes or spending cuts.

In truth however, there are no real tax cuts in this proposal. The true burden of government is not measured by how much it taxes but how much it spends. Since this deal ensures that government will be more expensive next year than it was this year, American citizens will have to shoulder the added cost. Just because Congress has decided to deliver the bill with debt rather than current taxes does not mean that the spending will not be paid for. The only thing the plan accomplishes is to alter the means by which government spending is financed.

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by Peter Schiff, president of Euro Pacific Capital, and host of The Peter Schiff Show

Today’s payroll report severely disappointed on the downside and left economists scratching their heads to explain the weakness. The explanation, however, is plain as day. As I have been saying for years, the US economy will not create jobs as long as the Fed keeps interest rates artificially low, and Congress keeps stimulating spending and consumer debt, punishing employers with mandates, regulations, and taxes, crowding out private investment with massive government borrowing, and preventing market forces from restructuring our out-of-balance economy.As new data comes in that continues to bolster my hypothesis, the politicians in Washington continue to follow the wrong diagnosis, while ignoring evidence that their policy prescription has failed. Rather than reassessing the effectiveness of their remedy, they are merely prescribing more of the same.

No doubt the 9.8% unemployment rate (17% when counting the under-employed or discouraged workers) will spark another extension of unemployment benefits, which will provide yet additional incentives for the unemployed not to work. In addition, we will likely get another round of stimulus – paid for with higher budget deficits – that will further hinder the capital investment and business formation necessary to produce sustainable jobs. Then, the inflation created by the Fed to finance those deficits will send consumer prices higher, making life that much harder for all Americans, regardless of their employment status.

All the talk in Washington that demand must be stimulated to create jobs is farcical. The news reports of mobs of shoppers trampling over each other to fill their carts shows there is plenty of demand. What is truly lacking in our economy is supply. Those mobs are still filling their carts almost exclusively with imported products. If it were true that demand creates jobs, we would be at full employment right now, but the truth is that demand is meaningless without the productive means to supply the goods.

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by Peter Schiff

If you’ve spent enough time in the gold community, you might be under the impression that the most imminent threat to the average American isn’t terrorism or unemployment, but rather gold confiscation. Starting with the fact that FDR confiscated gold during the last Great Depression, and continuing to the quite accurate forecast that we are headed into an even Greater Depression, unscrupulous coin dealers have been pushing investors to buy expensive “numismatic” or “collectible” coins that they claim would be protected from government seizure. The only problems are that the original motive for confiscation no longer applies and the “protection” offered by major coin dealers wouldn’t actually help you keep your gold.

THE TYRANT’S ORDER

In 1933, President Roosevelt issued Executive Order 6102, prohibiting the private holding of gold and requiring US citizens to turn over their gold bullion or face a $10,000 fine ($167,700 in today’s dollars) or 10 years imprisonment.

Gold coin and gold certificates in an amount not exceeding in the aggregate $100 [about 5 troy ounces at that time] belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins.

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by Peter Schiff, president of Euro Pacific Capital, and host of The Peter Schiff Show, broadcasting live from WSTC Norwalk CT from 6pm – 8pm Eastern time every weeknight, and streaming at www.schiffradio.com

Given the opposing views of the potentially parsimonious new Congress and the continuously accommodative Federal Reserve, there is a movement afoot among Republicans to eliminate the Fed’s “dual mandate.” Prior to 1977, the Fed only had one job: maintaining price stability. However, the stagflation of the 1970s inspired politicians to assign another task: promoting maximum employment. This “mission creep” has transformed the Fed from a monetary watchdog into an instrument of social policy. We would do well to give them back their original job.

The imposition of the “dual mandate” was informed by the Keynesian belief that inflation and unemployment don’t mix. An economic concept known as the ”Phillips curve” postulates that low levels of one cause high levels of the other. But, like many things in modern economics, the curve is a fiction. There is no real reason why low inflation would produce unemployment or full employment would create inflation.

On paper, at least, the Fed has appeared to strike the balance that Congress demands. But this is a fool’s errand. The Fed’s dual mandate is the equivalent of asking a corporate CEO to maximize shareholder value by giving away as many free products as possible to consumers.

The best way for the Fed to ensure maximum employment is to focus on its one true job – creating price stability. The irony of the dual mandate is that by trying to satisfy both, the Fed ensures that we will get neither.

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by Peter Schiff

As the world awaits another $600 billion flood from Bernanke’s printing press, central bank governors from Brasília to Tokyo are preparing to respond in kind. This is the monetary equivalent of a nuclear war, except instead of radiation, bombs of inflation threaten to make the world economy uninhabitable for saving and productive enterprise.

While much of the attention has been focused on China and accusations that it is a “currency manipulator,” the first shot in this war was clearly fired by the US Federal Reserve. Last month, the Fed came out with a statement that, for the first time ever, said inflation is rising at a rate “below its mandate.” That is, they acknowledged that the deflation threat had passed, that prices were stable – but they still intended to send prices higher.

Since the Bretton Woods Agreement was signed in the wake of World War II, the global monetary system has been based on the US dollar. This means that when the Fed decides to create trillions of dollars of inflation, other countries can’t simply say, “let them dig their own grave.” Instead, because their international transactions are denominated in dollars, they feel a pressure to maintain relatively stable exchange rates between their currencies and the dollar.

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by Peter Schiff, president of Euro Pacific Capital, and host of The Peter Schiff Show, broadcasting live from WSTC Norwalk CT from 6pm – 8pm Eastern time every weeknight, and streaming at www.schiffradio.com

There has been so much discussion recently about “QE 2″ that you would think the entire financial sector were about to embark on a transatlantic cruise. Unfortunately, they, and we, are not so lucky. In the year 2010, “QE 2″ doesn’t refer to a sumptuous ocean liner, but a second, more extravagant round of “quantitative easing” – stimulus. In the past, this technique was simply called “printing money.” As if the nation has not already suffered enough from the first round, Captain Ben Bernanke and the Fed are determined to compound the damage by hitting us with another monetary juggernaut. Their stated goal is to boost the economy and create jobs. However, since economic growth cannot be achieved by printing money, their QE 2 will sink just as surely as the Titanic.

The intent of QE 2 is to lower interest rates to promote job growth and avoid the apparently growing threat of deflation. But the very idea that the economy is weak because interest rates are too high is laughable. Deflation is the market’s cure for the asset bubbles that have recently burst, so any attempt to avert it will only weaken the economy further.

In fact, one of the reasons the US economy is in such bad shape is that interest rates are already too low. Low rates have encouraged excess borrowing, by both individuals and governments, and discouraged saving, fueling new asset bubbles at the expense of legitimate investment. As a result, the dead weight of debt has simply overloaded our economy, and our creditors are getting nervous. What we need now is to make hard choices, not engage in more easing – to deleverage, not borrow more.

Worse still, by keeping rates too low, the Fed has enabled the US government to grow significantly larger than it otherwise could had its borrowing been restrained by higher rates. Absent these low rates, Washington likely wouldn’t have passed expensive new healthcare and financial regulation reforms; they would be too busy trying to keep the lights on in the Capitol.

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by Neeraj Chaudhary, Investment Consultant in the Los Angeles branch of Euro Pacific Capital

While the US economy continues to weaken (see my recent commentary: Don’t Doubt the Double-Dip), many foreign economies continue to experience solid — even spectacular — economic growth. When the global economic crisis began in 2008, many forecasters doubted that the world economy could return to growth without the US consumer. But the world is learning what Peter Schiff has long predicted: that the US consumer is a drag on the world economy, not an engine for growth. As “decoupling” becomes more apparent, emerging economies are forming trade links among themselves, accelerating the process of decline for the United States.

To get a better understanding of how decoupling works, it helps to picture a train in motion. Together, the cars and engine travel together on the track. Now imagine that last car, the caboose, detaches from the rest of the train. At first, the caboose travels at nearly the same speed as the rest of the train. The distance between the two is hardly discernable. Over time, however, the car slows down as friction and gravity take their toll. Meanwhile, the engine powers ahead. The distance between the caboose and the train gradually becomes greater and greater, until finally the engine is gone from sight, leaving the caboose sitting idle on the track.

This process describes how many of the world’s economies are steadily pulling away from the United States. As trade links grow between countries far from our shores (such as those being solidified between Asia and South America), the distance between the United States and the rest of the world is becoming larger, and decoupling is becoming more and more pronounced.

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by Peter Schiff, the president of Euro Pacific Capital, and the host of The Peter Schiff Show, streamed live Monday through Friday from 6pm – 8pm Eastern time at www.schiffradio.com.

Congressional Republicans and Democrats are engaged in a heated debate over which Americans deserve not to have their taxes raised, with both claiming that some form of tax cut will stimulate the economy. The primary point of divergence is what type of cuts will be most likely to get Americans spending, and whether the wealthy will wastefully save their extra cash or use it to create jobs. This debate is academic. If a stronger economy (rather than pre-election posturing) is really the goal, then tax cuts alone will fail.

The real impediment to economic growth is not taxes, but the government spending that makes high taxes necessary in the first place. Given the widespread, but erroneous, belief that spending is the root cause of economic growth (rather than saving and investment), it may shock many to know, especially my fellow Republicans, that of all the three means to finance government – taxation, borrowing, and money creation – taxation is the least destructive over the long term.

I will discuss this topic in depth tonight on the debut broadcast of The Peter Schiff Show, my new weekday radio show on WSTC in Norwalk, CT. Stream it over the Internet from 6pm-8pm Eastern time, every weeknight at www.schiffradio.com.

Despite the visceral sting on April 15th, taxes have the virtue of being honest, direct, and most importantly, visible. By transferring purchasing power from one group to another, taxes take a pie that has already been baked and change how it is sliced. But taxes do create dangerous disincentives if they are abused. Raise taxes high enough and society’s most productive individuals may stop working; keep raising them, and the public may riot. As a result, a government that relies primarily on taxes tends to be one that lives within its means.

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by Peter Schiff, president of Euro Pacific Capital and author of the new best-selling economic fable, How an Economy Grows and Why It Crashes

Long ago, before economic models developed their current levels of sophistication, it used to be that the goal of a government’s economic policy was to bring prosperity to its citizens; in other words, to raise the general level of material comfort, while at the same time reducing the amount of toil required to attain that end.

However, due to the blather spouted by modern economists, success is no longer measured in those terms. Instead, governments simply look to pump up nominal levels of gross domestic product (GDP), while simultaneously catering to the needs of entrenched political classes. As exports feed directly into GDP, currency devaluation has been widely used as a means to boost exports and therefore achieve ‘prosperity.’ In this model, selling is an end unto itself. There is no focus whatsoever paid to the obviously negative consequences of currency debasement: diminished purchasing power and lowered living standards.

Way back in the 20th century, a nation’s currency was viewed much as a company’s stock price. The reliability, competitiveness, and growth of a national economy usually translated into a strong currency.  This system made sense.

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by Mary Anne and Pamela Aden, authors of The Aden Forecast; written for Peter Schiff’s Gold Report, a newsletter devoted to the precious metals market.

Gold is looking good. Since its summer low of $1160 in late June, it has surged to $1275. That’s a nearly 10% gain in less than two months, and even though gold has again broken its all-time record high, it’s poised to move still higher.

What’s Driving the Gold Price Up?

There are several key factors coming together at the same time and all of them are bullish for gold. But if we had to boil it down, the bottom line is uncertainty. This makes investors nervous, which has always been good for gold. But is this response rational?

We think so. Gold is the ultimate safe haven and as the economy stumbles, demand for gold has grown. That’s been the case for almost a decade. In the second quarter of 2010, for instance, the economic indicators were down and gold demand was up 36%.

Investors are concerned. Not only did the economy falter this month, but the stock market declined as well. This has fueled uncertainty about the government’s policies, the potential for a “double dip” recession, and the danger of a deflationary period.

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