By Economist Peter Schiff                                                                                     

 

Economists who now see American troubles spreading around the world are predicting that foreign central banks will ignore the gathering inflation threat and follow the Fed down the rate cutting path. Similarly, they argue that since the downturn began here, the U.S. recovery will likely be underway while the rest of world is still decelerating. These assumptions have prompted a rally in the dollar, a sell-off in gold, commodities and foreign stocks, and have cast doubts on the ability of foreign economies to "decouple" from the United States. Investors should not take the bait.

America does indeed pose a global threat, but not for the reasons these economists suppose. Foreign economies are suffering not because Americans have slowed their voracious spending, but because they are defaulting on hundreds of billions of dollars of existing loans underwritten by lenders around the world.

The conventional wisdom is that foreign economies depend on Americans to buy their exports. This is false. The global expansion of the past decade has created new demand everywhere, and people and businesses in all corners of the world are spending. However, in America, spending has largely been achieved through a massive vendor financing scheme. Foreign supplied credit has allowed Americans to continue buying, even while American income and savings have dropped. As this credit goes bad, the losses are landing on the bottom lines of foreign financial firms. In other words, the global pain is not resulting from American contraction but from having financed our preceding expansion. This is a critical distinction few have been able to make, and it is vital to appreciating the decoupling that has already occurred beneath the surface.

The current losses that banks in Europe and Asia are now suffering are real, but future losses can be avoided by suspending future lending to Americans. Shutting off this credit will of course torpedo the dollar, but that is precisely what must occur. By allowing the dollar to drop to its natural, unsupported level, not only will the American caboose be decoupled from the global gravy train, but the rest of the cars will move along the tracks much faster. Absent the U.S., there will still be plenty of consumers to buy what is produced, and plenty of investment opportunities for those with savings. Rather than dragging the global economy down, such a development would actually un-tether it.

On the other hand, left to its own devices, the American economy will implode. There will be fewer products for American consumers to buy and very little savings for anyone to borrow.

Some foolishly believe that many of the world's problems result from dollar weakness, and that pushing the dollar back up would be good for all. For example, since the weak dollar is contributing to the rise in oil prices, a stronger dollar should help bring prices down. However, if foreign governments weaken their own currencies to push the dollar up, they will simply succeed in bringing oil prices down for Americans. Oil prices will go up for their own citizens. This can't be an attractive bargain for any European or Asian political leader.

The weak dollar is merely a manifestation of substantial structural problems underlying the American economy. Unfortunately for us, the solution to those problems, as well as the global economic imbalances, can only be found in a weaker dollar. Efforts to artificially prop the dollar up will only exacerbate those imbalances, and make its ultimate fall that much more severe.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book "Crash Proof: How to Profit from the Coming Economic Collapse." 

 

 

 

August 16, 2008: Tommy Williams President Of The National Auctioneers Association 

Bruce Norris is joined this week by President of the National Auctioneers Association, co-founder of the Williams and Williams Auction Company, and panelist for I Survived Real Estate 2008, Tommy Williams. Bruce and Tommy discuss the extremely volatile past 5 months, the possibility for more unknowns in the coming year, what caused this to happen, innovative financing, homeownership levels, what buyers should have to bring to the table in order to own a home, what would happen if deposits weren't required at auctions, people taking advantage of government system, HR3221 and some of the benefits, the unintended consequences of HR3221, valuation of properties and how auctions are part of that process, a correct version of an auction and how it brings out true value, overbids during a boom market, why auctioneers get frustrated because they are typically only considered during a downturn, builders releasing phases via auction and the benefits, if Realtors view auctions as partners or competition, how auctions work with Realtors, why auctions aren't in the MLS, the task force between NAR and NAA, if Tommy can tell from auctions which areas are in trouble, NAA as a vast resource of statistics, how quality holds much more weight than price, if California is getting worse, the two states with the worst declines, ignoring true affordability, how we can do better in the near future,

 

 

 

 

(Sep 18, 2007)- "If the dollar loses value too quickly, it could wreak havoc on the economy and financial markets - driving up interest rates and inflation and slashing Americans' purchasing power" -Peter Schiff 

 

(Sep 19, 2007)- "People keep talking about Fed bailouts as if there is no cost. All the Fed can do is create new dollars. What that does is diminish the value of all the dollars everybody already has. They try to socialize the losses among all the holders of dollars" -Peter Schiff

 

Aug 14 -  The cost of living, led by the soaring cost of gasoline and food, is rising at the fastest rate since the recession of the early 1990s, the government said on Thursday, handing a de facto pay cut to the American worker. The report, from the Labor Department, offered quantitative proof of what Americans have been feeling for months: almost everything costs more, even as they have less money to pay for it.Prices of a wide range of common products in the Consumer Price Index were 5.6 percent higher last month than they were in July 2007, the sharpest annual increase since January 1991.Much of the increase has been driven by the immense run-up in gasoline prices. But food, beverage and transportation costs are also significantly higher than they were a year ago.The higher prices have made many workers' wages effectively worth less............................

 

(Aug 16, 2007)- "The housing bubble has burst. Prices are going to collapse and sales are going to fall through the floor." -Peter Schiff 

 

Aug 14 -- Buddy Yates sits at a dining room table awash in paperwork. The bills, late notices and letters represent his nearly yearlong quest to keep his family in the three-bedroom North Las Vegas tract home he bought two years ago. In December, when he could no longer afford the $2,365-a-month payments, much less the higher payments set to kick in within months, he dialed up his Texas-based lender, EMC. Yates, a 60-year-old pastor who officiates at valley wedding chapels, wanted the company to restructure his loan by lowering his payments and spreading them over a longer term. By Yates' account, he ran into a thicket of red tape. After seemingly endless waits on hold, he told his story over and over because the same staffer wasn't available. Company representatives would then give contradictory advice, he said. "When you talk to some of those people it's like talking to this table.................................


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(Sep 21, 2007)- "With the Federal Funds Rate cut, the Fed revealed that it has no interest in defending the dollar or containing inflation. This kind of irresponsibility is all gold needs to move higher from its current levels unless the Fed somehow finds its backbone within a year or two, then gold has a good chance to take out its inflation-adjusted high of nearly $2,000 per ounce within this decade." -Peter Schiff

 

 

(July 31, 2007)- "It's going to soon hit $90 and go north of $100 next year. We should see $150 to $200 oil in the next two to three years because of the drop in the dollar.'' -Peter Schiff