Updated: 'Don’t Bet On A Recovery'

Debt,Federal Reserve Bank,Inflation,Labor,Uncategorized


PETER SCHIFF CHALLENGES “those who fantasize about a consumer-led recovery to describe where the spending money will come from. Most consumers are tapped out, millions are unemployed, and home equity has been wiped out. The only reasonable thing for them to do is to pay down debt and sock away as much money as possible to rebuild their savings.

Beyond the question of ‘how’ the spending could be achieved, is the deeper question of ‘why’ such activity should be sought at all. Excessive spending, fueled by an insane housing bubble and catalyzed by reckless monetary and fiscal policy, was the reason that our current recession became unavoidable. Why would we want to go down that road again?

During the run up to the crash, excess spending had created economic distortions that have yet to be resolved. Too many resources, including land, labor, and capital, were devoted to servicing an unsustainable economic model in which Americans borrowed money to buy homes, products and services they really could not afford. In many cases consumer behavior was influenced by overly optimistic assumptions regarding real estate related riches.

However, now that the real estate bubble has burst, Americans are coming to terms with a more sober reality. Many have cut up their credit cards, dramatically reduced their spending, and have squirreled away as much money as they can. This change in behavior should necessitate a dramatic shift in the labor market as workers move away from jobs associated with consumer spending and toward jobs associated with real production, primarily for exportable goods.

The real problem is that monetary and fiscal policy designed to re-inflate the burst spending bubble is preventing this transition from taking place. As a result we are not creating the jobs we need to replace – the ones we have lost in mortgage servicing, home improvement, and real estate sales (which we never really needed to begin with). As these jobless remain unable to find alternative employment, our economy will continue to languish.

Some will argue that the new jobs created by government stimulus spending will provide the additional purchasing power necessary to revitalize consumer spending. There are two problems with this expectation. First, those jobs being ‘created’ by the government are outnumbered by those being destroyed by government domination of resources. Second, even if it were possible for job growth to return, having hopefully learned from their mistakes, workers will be far more frugal with their paychecks than they were in the past.”

The complete column is HERE.

Update: From the U.S. Bureau of Labor Statistics comes “THE EMPLOYMENT SITUATION — FEBRUARY 2010.” It’s not good.

5 thoughts on “Updated: 'Don’t Bet On A Recovery'

  1. Steven

    Peter uses sound logic in a supply and demand sense to come to his forecast and I find myself agreeing with his conclusions.
    However, on a personal level I am not seeing or experiencing any of the effects of this supposed downturn.
    It looks to me that we have a corporate culture controlled by spastic individuals, whose only leadership attribute is selling themselves to their constituents, pretending they know something, acting ‘responsibly’ in response to the latest economic news, and in place of making any intelligent choices as how to maintain their company’s profitability, they resort to the easy way out and lay off the people who helped create that company’s wealth in the first place.
    No these aren’t the titans of industry we’ve been led to believe they are. These are over educated, over rated, sad examples of humans who should be the ones on first ones kicked to the curb with the cords of their golden parachutes cut.
    And the same applies to all the dullards sitting on these corporate boards with their i.v.’s steadily draining the life from the company without consideration for the lives attached to it.
    And government is not the answer. People are. Individuals need to, on an individual level, not some corrupting collective group, understand their own self worth and be willing to say FU to these petty hacks who think they hold sway over each of us, and let true competition begin as the basis for mutual respect in the work place.

  2. Myron Pauli

    I fully confess to NOT understanding consumer behavior. My big purchase for the week was buying cans of Chile for 34 cents/can ($1.79 discounted to $ 1.34 with $1 off coupons). However, I took my daughter and 3 friends to the Tysons Corner mall to splurge $20 on a movie and popcorn while I read the newspaper and watched hundreds of people spending money on overpriced garbage at the mall. So the federal government prints and borrows money, pays its employees and those of contractors, and the mostly women and kids (with guys tagging along) go out and spend it in Fairfax County VA on overpriced crud imported from Asia – such as $ 400 coats at the North Face. As long as the counterfeiting keeps up, so does the overcrowded mall. To me, America 2010 has the feeling of Austria 1913 – right before the end of an era. I don’t know when the financial bubble will collapse but I have some cans of Chile to live off of for a while.

  3. John Danforth

    Anyone who has any real wealth is in for a lot of trouble trying to hang on to it.

    For us peons, the best way to save is by buying pre-1964 silver coins. Can’t be inflated away, can’t be confiscated easily, can’t be taxed easily. Hide in a separate place from your guns and ammo.

Comments are closed.