Best of the Week
Most Popular
1.Oil Wars 2016 - US vs Russia vs Saudi Arabia vs Iran - Nadeem_Walayat
2.Crude Oil Price Crash Triggering Global Instability, Trend Forecast 2016 - Nadeem_Walayat
3.Stock Market Crash - Last Week was The 2nd and Final Warning... - Clive_Maund
4.Stock Market Crash Apocalypse or Bull Market Severe Correction? - Nadeem_Walayat
5.TShipping Said to Have Ceased… Is the Worldwide Economy Grinding to a Halt? - Jeff_Berwick
6.Crude Oil Price Crash Catastrophe, Independant Scotland Literally Begging to Rejoin the UK - Nadeem_Walayat
7.Summers: Global Economy Can't Withstand Four 2016 Fed Hikes - Bloomberg
8.Gold And Silver: New World Order: Public Be Damned, Preferably Dead - Michael_Noonan
9.Rigged U.S. Ttreasury Bond Market Double Barreled Hidden Q.E. To Infinity - Jim_Willie_CB
10.Major Stocks Bear Market Awakening - Zeal_LLC
Last 5 days
David Cameron Humiliated in Poland Over Refusal to Stop Taking UK Benefits, BrExit or Super State? - 8th Feb 16
Why Crude Oil Prices Could Continue FALLING From Here - 7th Feb 16
Stock Market S&P, NAS Best, Most Reliable Answers Come From The Market And You - 7th Feb 16
Stocks Bear Market Continues - 7th Feb 16
Silver COT Paving Way for Sustained Upside Breakout Sharp Rally - 7th Feb 16
US Dollar Double Top, Gold Prospects Brightening Rapidly - 7th Feb 16
Gold And Silver - Is A Bottom In? Nothing Confirmed - 7th Feb 16
Gold Stocks Something has Changed - 6th Feb 16
UK Interest Rates, Economy GDP Forecasts 2016 and 2017 - 6th Feb 16
Gold Price, Mining Stocks Rocket Higher - 5th Feb 16
Crude Oil Price Bottoms and Blues - 5th Feb 16
Gold and Silver: Ripe for a Recovery! China May well Change the Game - 5th Feb 16
How Pension Plans are Responding to Financial Repression - 5th Feb 16
Senior Gold Producer Goldcorp Takes Large Stake in Nevada's Gold Standard Ventures - 5th Feb 16
Tips for Smart Oil and Natural Gas Investing 2016 - 5th Feb 16
Another Corporate Giant Is Leaving the U.S. – What This Means for You - 4th Feb 16
TPP is Economic Warfare, Trade Can Make Everyone Worse Off / Governments are Stupid - 4th Feb 16
Gold and Stock Markets Inflection Points Galore - 4th Feb 16
Putin Cries Dyadya (Uncle), Is Saudi Arabia Listening? - 4th Feb 16
Gold Price Golden Bottom? Video - 4th Feb 16
Look North for Value-Priced Growth in Healthcare Biotech Stocks - 4th Feb 16 - TLSReport
BrExit EU Referendum - Britain's FINAL Chance for Freedom From Emerging European Superstate - 4th Feb 16
HUI Now Confirming Gold Price Move Higher - 4th Feb 16
Crude Oil Price Forecast 2016 As Good As It Gets - 4th Feb 16
Gold and Silver More 'Flight To Safety' Active February - 3rd Feb 16
Raytheon Company: A Defensive Stock for a Defensive Market - 3rd Feb 16
Is Silver Really a Weak Link - 3rd Feb 16
Gold to Beat Stocks 2016? - 3rd Feb 16
David Chamberlain Cameron, Britain's Last Chance for Freedom From Emerging European Super State - 3rd Feb 16
EU UK Draft or Daft Agreement By Donald Tusk to Members of the European Council in Full - 2nd Feb 16
Europe: Why It's Going to Get a Lot Worse Before It Gets Better - 2nd Feb 16
The Next Generational Bust Is Coming, Stock Market 70% Collapse - 2nd Feb 16
The Coming Stock Market Decline May be a Monster - 2nd Feb 16
S&P 500 Has Likely Entered a New Bear Phase - 2nd Feb 16
How and Why To Move Your Assets Offshore Before the Financial Collapse - 2nd Feb 16
Central Bank Created Silver Price Rally - 1st Feb 16
The Fed Is Not Hiking Rates: Risk Assets To Perform - 1st Feb 16
US Dollar and US Treasury Bonds Big Picture - 1st Feb 16
BOJ Negative Interest Rates Central Banking Crime Syndicate's War on Cash for Triggering Panic Consumption - 1st Feb 16
Elites Set to Wipe Out Stock Market Shorts Before Next Downwave... - 1st Feb 16
Stock Market A-B-C Correction Unfolding - 1st Feb 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Global Financial Crisis 2016

U.S. Economy Has Failed to Recover, Fed Prepares to Pump the Economy

Economics / Great Depression II Oct 08, 2010 - 02:06 PM GMT

By: Peter_Schiff

Economics

Best Financial Markets Analysis ArticleSince the US economy has failed to recover as widely predicted, pressure on the Federal Reserve to conjure a solution has increased. In fact, the Fed now faces the hardest choices in its history. It can either redouble its past efforts to re-inflate America's bubble economy (risking the destruction of the US dollar) or it can stop pumping and let the economy deflate to a self-sustaining level. Unfortunately, both choices guarantee severe economic pain - but only one offers the possibility of ultimate success.


Today's news that the economy lost 95,000 jobs in September confirms that record doses of stimulus have failed to create a real recovery. The loss of 159,000 government jobs in the month could have been a positive if those lost positions had been replaced by wealth-generating private sector jobs. But the 65,000 jobs generated by businesses didn't come close. Worse still, most of these jobs came from the goods-consuming service sector rather than the goods-producing manufacturing sector (which lost another 6,000 jobs). The unemployment rate has now been above 9.5% for 14 consecutive months, the longest such streak since monthly records began in 1948. More importantly, the real unemployment rate, which factors in discouraged and under-employed workers, rose from 16.7% to 17.1%.

Armed with this weak jobs report, the Fed seems poised to make good on its plan for other round of quantitative easing (in English: printing money). Recent statement from top Fed governors have made that sentiment clear. Apparently they feel that they must do something, even though Fed inaction would be far better for the economy. At a time when we should be trusting the markets to grind out three yards in a cloud of dust, we have put our faith in the Fed's ability to fling a Hail Mary pass, even though all previous attempts have failed.

Most people assume that the "crash" I referred to in my 2007 book "Crash Proof: How to Profit from the Coming Economic Collapse" occurred in 2008. Those who actually read the book know otherwise. The financial crisis that resulted from the bursting of the housing bubble, accurately foretold in my book, was not the crash itself, but merely the overture to a much more tragic economic opera for which the curtain is just now rising.

I argued that the housing bust would threaten the financial system with collapse and that the government would react with stimulus and bailouts - thereby making the situation much worse. That is exactly what happened. I did not believe then, and I don't believe now, that the process of liquidating bad debt would kill us. But I do believe we will succumb to Washington's "cure" of endless stimulus.

Many now claim that government deficits and Fed easing prevented a repeat of the Great Depression. From my perspective, calamity was not averted but merely delayed. The price for the reprieve will be a far more severe downturn, which I now think will surpass the Great Depression.

In Crash Proof, I talked about how our economy suffered from the co-morbid diseases of asset bubbles, excessive debt and consumption, and insufficient savings, capital investment, and production. These conditions did not arise as a result of market forces, but from foolish monetary, fiscal, and regulatory policies that distorted market forces. The proper cure would have been to remove the distortions and allow the markets to correct.

Unfortunately, as I forecast, the opposite occurred. Washington lacked the economic understanding and the political will to allow for a painful adjustment to take place. So, instead, they cranked up the printing presses and administered the equivalent of economic heroine. The drugs succeeded in postponing the pain, but at the expense of exacerbating the underlying condition. As the high wears off, a more debilitating hangover will set in.

By electing to bail out the financial sector, prop up housing prices, allow excess spending and borrowing to continue, and maintain superfluous government and service-sector jobs, the government has pushed our economy to the edge of a very dangerous precipice.

The right choice is to admit past mistakes and reverse course. The Fed must raise interest rates aggressively, shrink its bloated balance sheet, and allow the real recession to finally run its course. It will be much more painful now than it would have been in 2008, but at least this time the pain will end and real recovery will take hold. By forcing the federal and state governments to slash spending, sound monetary policy will allow market forces to rebuild a solid foundation upon which future prosperity may be built.

The wrong choice is for the Fed to continue quantitative easing as planned, allowing the government to grow at the expense of the economy. This will widen the economic imbalances that lie at the root of our problems. As a side effect, the US dollar will continue spiraling downward as it becomes clear to foreign creditors that the Fed has no interest in protecting their investments. A weaker dollar will lead to higher inflation and higher interest rates, which will make the Fed's task that much more difficult.

In the end, our bubble economy will not just deflate, it will burst. The dollar will collapse, consumer prices will skyrocket, real credit will completely evaporate, millions more will lose their jobs, and our economy will change in ways few of us can imagine. Our standard of living will plummet and legions of middle- and upper-class Americans will be impoverished. It is not a pretty picture, but unfortunately, it's the one our government is painting. Unfortunately, we are running out of time to change artists.

Click here for a description of Peter Schiff's best-selling, just-released book, How an Economy Grows and Why It Crashes.

Regards,
Peter Schiff

Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Peter Schiff Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History