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Video: Peter Schiff vs. John Mauldin on the State of the Economy

Written by Gary North on March 2, 2013

My former partner (Mauldin) and my former stock broker (Schiff) square off. This is the way to get issues clearer.

It’s muddle-through economics vs. the Austrian theory of the business cycle.

My view: it’s time to prepare personally for the impact of the Austrian theory of the business cycle by taking advantage of Bernanke’s monetary muddling.

Keynes will lose this war in retrospect. Fiat money will not fund at zero social and economic cost the massive federal deficits that are justified by economists who claim to be extending Keynes’ legacy, but who in fact have no theory, merely ad hoc justifications of the relentless bureaucratization of the economy by means of the Federal Reserve System.

Mises long ago won this analytical war. But people will not believe this until it comes out of their hides. It will. The question is: How soon?

Keep this analytical question in the back of your mind. “Where does the federal government get the extra money beyond taxes to run its $1 trillion-a-year deficits?” There are two answers: (1) borrowed money that would otherwise have funded capital expansion; (2) the Federal Reserve’s creation of digits out of nothing.

Next question: “Do digits create wealth?” Alternatively: “Do we really get something (economic growth) for nothing (digits)?”

Then ask this: “If the federal government ran budget surpluses, where would the money saved go?”

If you answered, “into the private sector,” go to the front of the class.

On this, there was agreement: the unfunded liabilities of the U.S. government are unsustainable.

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5 thoughts on “Video: Peter Schiff vs. John Mauldin on the State of the Economy

  1. Econoranter says:

    I had no idea John Mauldin was such a supporter of Big Government, Big Spending, and Big Government Debt, even if only in secret. He says he doesn't want any overspending but next he says we just have to keep up government spending or GDP shrinks. Why is that a bad thing? GDP is a terrible measure of economic health. How can money be used productively if spent by politicians? Would he be in favor of a GDP that was 100% Government spending? Would that be something he couldn't agree to cut? He made no sense

  2. I would send my money to Peter Schiff and not to John Mauldin.

  3. Maudlin's point that the government spending *can* boost GDP (which is debateably important) and for a 12 month cycle, it can do that. Further, as Gary has pointed out, each marginal $$ of government spending does less and less for that growth. But it still has an impact. Obama/the Fed has borrowed/printed more to maintain the same level of growth. Neither one (Schiff or Mauldin) is incorrect.

  4. Jackspraat says:

    Kensian economies are exclusively kingdoms, communists, marxist, and not asscoiated with the free market capitalist economies, serving democratic and republic governments. We should have a pay as you go system, spend no more than collected by a taxing authority. There is no place for a behemoth government in our society that must handle every dollar to its destination, the destination of paybacks, and the working and nonworking poor, who can't support themselves. Especially when it's vote buying. The corruption just keeps going and growing!

  5. But where does the money come from to overspend??? Borrowed out of the economy or counterfeited (lowering the value of dollars already out there). It can't boost GDP. It can only rearrange wealth.