Thursday, December 25, 2008

Consuming our way to Prosperity, or Maybe not

So how are things going for you financially? How is that 401K? How are houses selling in your neighborhood? Well, don't worry. The government has more economic stimulus packages on the way. Just a trillion here, a trillion there and we will jump-start the economy again and get everything back on track. Our Democrat Congress, Pelosi and conservative Republican President GWB(Bush) has already borrowed trillions the past year for bailouts and stimulus packages and don't forget those cuts in interest rates. Didn't you get a check last spring? Didn't you spending it create tons of new jobs, boost your 401K and increase your house value when we all went out shopping with that money the government borrowed to send us? ( Well some of us anyway, if you were too successful your spending doesn't count.)

The saviours of America's economy go into battle for Washington/Wall Street:

President Obama promises even more spending and will send out even more stimulus tax rebate checks. From his website: "Barack Obama will provide a tax cut for working families: Obama and Biden will restore fairness to the tax code and provide 95 percent of working Americans the tax relief they need. They will create a new 'Making Work Pay' tax credit of up to $500 per person, or $1,000 per working family". And Obama and democrats promise that sending out borrowed money, primarily to those that pay no taxes, is the secret of creating jobs. They are also for federal funding of key companies like GM that provide great paying jobs with fantastic benefits and unbelievable retirement pensions, and we all want those, right? Maybe they will hire us!

On cable (from 2006-2007 ) Financial Expert Ben Stein predicts record economy growth:
Now in late 2008 Financial Expert Ben Stein says we are in a depression and need massive multi-trillion dollar stimulus and bailout packages :".. keep people alive": (FNC Cavuto. business.)

While our investment advisers and those experts on cable like Ben Stein were promising us that the financial stocks were a great bargain and the next cut in interest rates and stimulus packages were going to continue the boom, one man called the bust :The Financial Prophet Calls it (Peter Schiff). Peter Schiff predicted that the housing market would crash the financial market and then the stock market. The cause? He said that the entire economic boom of the last six years has been based on debt, printed dollars(low interest rates) and consumption. The rest of the world loans us money either through federal bonds or through private financial investments and we spend it to buy goods produced in other countries. He predicted that our housing boom was a bubble based on borrowing and printing.

Saving the economy with 2008 tax rebate checks at Walmarts

Watch the following videos (November 2006 part 2 and 3) where Schiff says the internet boom went bust just before GWB got in office 2000 and why the economy needed a recession as a fix back in 2002.

(Nov 2006 Peter Schiff Mortgage Bankers Speech Part 2 of 8)

Instead of allowing the needed limited recession in 2002, the federal government (Washington-Establishment-Wall Street) along with Greenspan set both monetary and fiscal policy (government borrowing and spending, printing, low interest rates) such that it created the biggest consumption binge in history. This pushed off the recession till 2007-2008 getting Bush and Republicans re-elected in 2004 while creating unproductive record debt. The debt/borrowing was used for non productive depreciating consumer goods: food, gasoline, vacations, foreign products, remodeling kitchens. The consumer part of the debt was leveraged against our increased housing values in home equity loans based on future price predictions. This was only possible because our interest rates stayed low said Schiff. Foreigners were keeping our currency from dropping in value by buying our debt (loaning us money) allowing us to continue buying their products. While the rest of the world loaning us their savings, the low interest rates and the foreign investment kept our house prices rising. Schiff said "We are not offering the world anything but our debt." The low interest rates discouraged saving, encourage borrowing, consuming and encourage speculation of stocks,commodities and investment property, including buying investment houses/property with no money down or leveraged against other properties that don't pay for themselves (ie enough rent) all based on future property value appreciation.

(Nov 2006 Peter Schiff Mortgage Bankers Speech Part 3 of 8)

Schiff quote : 'Saving is under-consumption in the present for consumption in the future'. Saving is the solution, a recession. In America we consumed in the present for the expense of the future.' Another Schiff quote :"The boom is the problem, the bust is the solution". His economic theory is that you need a recession to get healthy, the sooner the better and says in 2002 we needed one, but this is political death for the elected. Politicians running for re-election need to pump more and more money, borrowed and printed (ie low interest rates), into the economy to look like they are fending off a recession but it only delays the eventual crash and makes it much worse. Guess what? There's No Pain-Free Cure for Recession (by Peter Schiff Dec 2008). The delay got Bush re-elected with an increase in congress, but his Republican party paid the price afterward. The natural inflation of other products like gas and food and commodities as part of the boom triggered the crash in late 2007 to 2008. Schiff also says the the federal government tries to hide inflation by keeping items out of the Consumer Price Index (CPI) like energy.

Here's a perfect parallel: As the consumer and federal government borrowed money from the future, GWB borrowed political election chips from the Republican Party's future dooming them in 2008. If the bust could have been held off till 2009, the Bush gamble could have paid off and McCain might have been elected and looked like the saviour of the economy in 2009, cutting deals with democrats for more socialist spending packages. Schiff makes the case that president Johnson did the same as GWB in 1960s with Vietnam, the Great Society, and the race to the Moon all at the same time without raising taxes. This was paid for by economic catastrophy in the 1970s, inflation and joblessness at the same time for a decade as the succeeding administrations printed the money. The Hannity-Levin (Bush apologists) talking points are that the whole financial boom bust problem was caused by the Community Reinvestment Act(CRA)with Fannie May-Freddie Mac. But that welfare type-affordable housing lending program could not possibly be the entire cause of the boom and bust and it didn't sell as a political message in 2008. Yes, the democrats were part of the financial problem with CRA and the easy loans for affordable housing but they had nothing to lose when those policies caused longer term damage. They knew any long term damage could be blamed on GWB as president and congressional republicans would pay the price and did in 2008. Bush and Republicans could not sound the fire alarm until it was too late, 2008 because they needed to take credit for the boom especially with problems in Iraq. But they also got the blame for the inflation. There are some clips of republicans warning democrats in congress opposing regulation but Barney Frank knew Republicans would get the blame being in majority in congress. See entertaining clip of Barney Frank Tells Bill O'Reilly it's all Republican's Fault because they were in majority, says to ignore past clips of himself .

If you watch the whole series (Nov 2006 Peter Schiff Mortgage Bankers Speech ) above and some other Schiff predictions at The Financial Prophet Calls it (Peter Schiff) it shows GWB/Washington/Wall Street/Democrats economic policy a failure and Obama's plans even worse, In fact he is saying EXACTLY what the 2009 Republican-minority need to say. Schiff is the direction the directionless republicans need to oppose democrats massive spending plans. The one thing Schiff didn't predict was that the USA would take the rest of the world economy with them, creating the current world deflation and short term flight to the dollar. But the solutions proposed by Obama and democrats, even more massive spending and borrowing will bring us the stagflation of the 1970s that he as predicted. All that needs to happen is that the rest of the world consume each other's goods without us to mount a world recovery and crash of the dollar.

Our President elect Barrack Obama has promised to 'put money in our pockets' with income tax cuts for those that pay no income taxes. This he promises as during campaign will create immediate jobs as these voters run out and spend the newly printed money. All that on top of the Bush/Paulson/Pelosi 700B bailout plan that democrat congress passed in Fall 2008 to reward bad investments some of which went to GM/UAW. Fred Thompson has a few words about how we got to where we are and the federal governments ability to manage the economy by more borrowing and spending.

More Peter Schiff prediction videos are at :The Financial Prophet Calls it (Peter Schiff)

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