Home Forums Hunting & Shooting Hunter's Campfire Excerpt from _The Real Crash_ by Peter Schiff

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Excerpt from the excerpt:
Government can slow the fall of housing prices, and so our politicians make sure that it does. For example, Obama has used TARP to keep people in their homes�often only delaying foreclosure and thus making homeowners even poorer. Fannie Mae and Freddie Mac ramped up their subsidies, thus keeping demand for homes higher than it would be. The Federal Housing Authority is subsidizing mortgages to the point that people are once again putting down zero percent�this applies upward pressure to home prices,slowing their fall.

But falling housing prices are part of the cure. Inflated prices are part of the disease. It�s as if a doctor saw a patient had an inflated count of white blood cells�the cells that respond to and fight infections�and so he decided to remove the white blood cells.

Along the same lines, government can keep interest rates low, and so it does. But low interest rates contributed to the disease. High interest rates are part of the cure that we need. Again, government makes sure that we never get the cure.

Falling prices and wages are another cure the government won�t let us swallow (more on this in chapter 3). Ask an economics writer today, and �deflationary death spiral� is the biggest threat facing our economy today. This is bogus. In the Depression, falling prices were a rare boon. They were a saving grace for anyone who lost his job and was spending down savings.

Today, Washington does everything it can to prevent falling prices. Mostly, this means (1) Keynesian stimulus to drive up demand for goods and services, and (2) inflating the money supply.

Falling prices would be a cure, and so government pumps up prices.

In other words, the market is trying to cure the economy, and the government won�t let it. The government�s �cure� for the market�s cure is more imaginary wealth.

I like this guy. He agrees with me. mike762 will like him too, and Penguin, I think, will like some of what he has to say about manufacturing. denton probably won't appreciate his failure to be terrified by the prospect of deflation.

Or so I think.

*** You are ignoring this user ***

I've been a Peter Schiff fan for years. I've read two of his books, and was planning on getting this one next. He's an Austrian School economics guy. He was one of the few regular TV guest economics commentators to predict the crash of the housing bubble while it was still booming, along with correctly explaining why it would crash. The hosts and other guests on these shows would regularly laugh him to scorn. When he was proven right (along with Ron Paul), they stopped inviting him on the shows or even acknowledging his existence.

Ya, I agree with Peter to. I've told my wife I would rather have $10,000 with a dollar worth a dollar rather than have a $100,000 with a dollar worth about .05 the price of printing.

Put another way, $10,000 dollars will purchase more goods and services when a dollar is worth a dollar than $100,000 will purchase when the dollar is worth .05 the price of printing.

Schiff's a bit of a hero of mine. He's absolutely resolute, fearless and takes on all comers like a bulldog.

You had me going there for a minute: I thought it meant I was ignoring you! Had to go check through my settings to make sure I wasn't--I make it a point never to ignore anybody. (Not automatically, anyway.)

Too bad his dad Irwin wasn't more successful.

Yep, they have him in prison. Being right when the government is wrong is very dangerous indeed.

How can a dollar be worth any number of dollars other than 1.0000? If it's collectible, maybe--say Elvis wiped his butt with it?

Even the dollar-denominated silver certificates were defaulted on in 1968 and no longer have anything to do with silver.

thanks for posting. I had not heard of him. I will look at his writings going forward.

Reading it now. Good book!

You've lost me. Somebody else will have to try this one.

Lemme ask it this way.

If I were to hand you a dollar, how would you tell whether it was worth a dollar or not?

Folks need to start thinking of the dollar priced in gold/silver, rather than gold/silver priced in dollars. Once one does that, all confusion is generally cleared up. Gold and silver are relatively constant in value, while the dollar constantly changes in value (i.e., how much gold and silver it can buy), almost invariably downward.

Okay, I get you now I think. Dollar is only worth a dollar because the government says it's worth a dollar. If the dollar was only legal tender to pay taxes that would give the dollar worth.

Look up the Isle of Mann or New York State before the state ratified the Constitution. Both use paper money as legal tender to pay taxes only. Both have or had in that of NY a viable paper currency that had value.

I realize Barak, under anarchy there would be no money other than gold/silver but the reality is that most people want a paper currency guaranteed by a government. I know that's stupid but its reality.

That's the way it should be but that's to confusing for most people. Economics is one of those arts/science that is way to confusing for 99% of the people. I've seen that up close and personal.

Theoretically a paper fiat currency can work if it's volume is maintained at a constant level, and assuming that government taxes and services must be paid in it, but like many things that are possible in theory, it's not possible in practice, since the folks who administer it will suffer from far too great a temptation to print and print, which is what invariably happens. This is also what happens when banks are permitted to engage in fractional reserve banking, and even reduces the value of real gold and silver when they engage in it. This is no different from counterfeiting. In a society where counterfeiting (including fractional reserve banking) is seriously punished (since it reduces the purchasing power even of everyone's real gold and silver while transferring that lost value into the possession of the counterfeiter), money cannot be printed into existence. Nothing stops banks, however, from issuing good notes backed 100% by real gold and silver in their vaults.

The sheeple have spoken, and what a shockingly articulate response it is .

Thanks for posting this, Barak. I think it's a thought provoking peice... And spot-on to boot!

Actually, in a free society there could be all sorts of different kinds of money. Time was, I would have said gold and silver would invariably wind up as the market leaders, same as they have for thousands of years; but I spent some time recently researching Bitcoin, and now I'm not so sure.

Bitcoin is pretty freakin' amazing. It sounds a little silly when you first hear about it, but the amount of thinking--good, clear, brilliant thinking--that has gone into it is monumental. There are still a few problems with Bitcoin, the way there were still a few problems with the Model A Ford, and I think Bitcoin is a step on the way to something more useful rather than being an ultimate in itself; but it's a big step.

If you haven't checked it out yet, you could do worse than to give it a shot. One of the problems with it, though, is that you really can't understand the genius of it unless you know a bit of cryptography, computer science, and mathematics. A popularized apologetic for it would go a long way.

But I digress.

Gold and silver are terrific at holding their value, but they're not particularly digital: you can't easily send them across a network. In the modern age, this is a severe handicap. Therefore, just as dollars have served as a commodity backing digital currencies such as PayPal, credit card transactions, Dwolla, and so on, I think in a free market gold and silver would be largely relegated to the role of backing commodity.

Different entrepreneurs would come up with different currencies backed by gold or silver (or palladium or platinum or rhodium or whatever) that aimed at different markets.

For example, one currency might be reliably accepted just about everywhere. Another might come with a heavy emphasis on individual privacy. Another might stress security. Another might be especially good at micropayments.

Of course, if you wanted to carry silver coins around in your pocket and pay for meals with them, you could undoubtedly find takers for them (heck, I've done that myself, even under a coercive legal-tender system); but the real volume, I think, will be done in digital currencies.