The West’s economy is interlinked by currencies, banks, and debt. There is no island of safety.
Peter Schiff has written a provocative report on how close we are to what he calls the crack-up. It’s a good thing, he says.
Up until very recently, political centralization was the norm. Today, the centralized Eurozone is about to break apart. The politicians are trying desperately to hold it together. But they can do this only by violating the European Union’s treaties and by hyperinflation by the European Central bank.
This is the beginning of the end. Both the EU and US are politically paralyzed, seeming only to be able to make compromises that involve more spending, more debt, and more central planning. The results are all too predictable to free-market thinkers: bailouts leading to moral hazard, low interest rates leading to ballooning debt, and eventually a cascade of systemic failures — leading to more bailouts.
It is bailouts from now on. The politicians and bureaucrats dare not let free markets expose the bad investments the big banks have made. I think he is correct.
The poison of Keynesianism has left the politicians unable to even listen to free-market solutions. Personally, I have found it nearly impossible to find a Keynesian professor or official to debate me — even though (or perhaps because) I have a track record of accurate economic predictions. You would think at least one of them would want to tell me why I’m wrong… to offer some excuses for their failure to predict the dot-com bubble, the housing bubble, or anything that has come after that.
This is just an illustration of what we, as investors and citizens, are facing. The halls of power, the media, and academia are completely closed off from reality. They’re clutching their theories and hoping that they don’t end up having to work for a living like the rest of us.
This is exactly right. The halls of academia and the corridors of power are manned by people who don’t have a clue about economic theory. They will give bad advice, just as they have in the past. But the stakes are getting higher.
The leaders in Europe are ready to inflate the euro into oblivion. They want only to save the big banks and their own re-election.
The same people who pushed for entitlement programs that Western nations couldn’t afford are now arguing that the EU must use the power of the printing press to “help” bankrupt Greece, Italy, Spain, and others. Really, this is just a secret tax on those who chose to save for a rainy day, and it will lead the euro on the road to ruin just like the US dollar.
The EU is still lending money to the Greek government. This will never be repaid.
No government will cut spending significantly. The state keeps getting bigger.
The USA is not far behind.
The failure of the Congressional Supercommittee shows how laughable Washington – and, by extension, the dollar – has become. The Federal Reserve is frantically buying Treasuries at auction to make up for wilting demand from foreign creditors, such that it may soon hold 20% of all outstanding Treasury debt. Meanwhile, the Supercommittee failed in its meager mandate to slow the growth of new spending by $100 billion a year, barely a dent in an annual deficit that runs over $1 trillion a year – not to mention the $15 trillion in debt already accumulated.
The Federal Reserve will create new money.
He thinks people will turn to gold. I think so to, but not in the next five to ten years. The public will stick with digital fiat money until that money moves from mass depreciation to hyper-depreciation. I think the FED reverse course and allow a major recession. Then the Great Default by Washington will come. That alone can save the dollar.