(Click On The Image Above To Watch As Peter Predicts The Imminent Bankruptcy/Federal Bailout Of Freddie Mac And Fannie Mae On November 21, 2007)

By Economist Peter Schiff                                                                                     

 

As the price of oil reverses course again and closes in on the unheard of price of $150 per barrel, Americans are finally responding to the pressure and have cut back on gasoline consumption. According to a report this week, Americans used 3.3% less gasoline than at the same time last year and usage now stands at a five-year low. Although the relative merits of slowing energy consumption is a subject upon which reasonable minds can disagree, the drop is nonetheless an extremely rare event in American economic history. Many on Wall Street are cheering the possibility that further "demand destruction" will ultimately lead to significantly lower oil prices. After all, this is basic economics. Prices are a function of supply and demand, and as demand drops, prices must follow. This is simple logic, wrongly applied.

What is missing from this analysis is that oil is a global commodity, and its price is not simply a function of demand in America. As demand is destroyed here, it is being created abroad. The result will be rising oil prices, despite the fact that Americans will be using much less.

In countries where currencies have risen against the dollar, oil price rises have been much milder. Given the strengthening economies overseas, and the slower price increases in those markets, foreign demand continues to rise, just as higher U.S. dollar prices cause it to fall here. In addition, central banks in nations where currencies are pegged are continuing to print huge quantities of money. This huge monetary stimulus is feeding oil demand, as foreign consumers use the new cash to buy gasoline.

In addition, as economic growth abroad far exceeds it here at home, foreigners are using their increased wealth to buy more automobiles. So while car sales are falling though the floor in America, they are rising briskly around the world. Take a look at what is happen in Russia, where booming car sales have resulted in Russia surpassing Germany as Europe's largest automobile market. We are talking about the former Soviet Union, where not too long ago many comrades still traveled in mule-drawn buggies. So as poor Americans drive fewer miles, wealthier Russians more than make up the difference.

Here lies the source of our problems. When the dollar was king, demand here was strong. American consumers, armed with the mighty greenback, flexed their muscle and priced foreign consumers out of the market. Now that the dollar is a 98 pound weakling, foreign consumers are returning the favor, and are kicking sand in our faces. So as more goods and resources are consumed abroad, Americans will be forced to consume less. Demand creation abroad leads to demand destruction at home.

More importantly, demand destruction in America will not be limited to gasoline, but will encompass a wide variety of resources and consumer goods, as strong demand abroad prices more Americans out of more markets. In the end, America's gargantuan trade deficit will return to surplus, not because of a highly overhyped export boom, but of an import bust.

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." 

 

 

 

 

July 12, 2008: Philip X. Tirone Of The Mortgage Equity Group

 

 

 

 

 

 

They own or guarantee $5 trillion worth of mortgages­ - nearly half of all the country's outstanding home loan debt-and they're crashing. Big time. Fannie Mae and Freddie Mac are struggling with an investor loss of confidence so great that, while they're unlikely to go under, they could conceivably see their ability to function impaired. That would wreak yet more havoc on an already wrecked housing market- making loans tougher to come by and possibly pushing hundreds of billions of dollars in cost onto U.S. taxpayers. How could the companies end up in such awful straits? Given the way they were created and run, a better question might be: how could they not? The two companies are so-called government-sponsored enterprises, created by Congress in 1938 (Fannie) and 1970 (Freddie) to help more Americans buy houses. Their mandate is to maintain a market for mortgages - buying loans from banks, repackaging them as bonds, and selling those securities to investors with a guarantee that they will be paid. This makes lending more tempting for banks because Fannie and Freddie take on risks like missed payments, defaults and swings in interest rates. But the companies are also publicly traded, with the usual mandate of trying to maximize profits for shareholders. That effort, of course, involves risk, but as quasi-government programs, they've long carried an implicit guarantee that the feds wouldn't let them fail. Their hybrid nature created both the opportunity and the temptation for the enterprises to take on more risk and to make themselves ever larger, more important and thus more profitable players in the mortgage market....................


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(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

 

July 7 -  Rebecca Woods and her family in Lathrop, Mo., have turned to the land, planting hundreds of vegetables and relying on their own chickens for eggs. Retirees Sally and Robert Jones of Alpine, Texas, have reverted back to some of the menus that got them through graduate school many years ago, living on beans, stews and soups. Dave Snyder of Mobile, Ala., goes to four grocery stores in search of bargains. Nancy Sierra of Fort Myers, Fla., now eats peanut butter and jelly sandwiches for lunch. And Tiffany Nicosia of Charlotte says that, more and more, she whips up new recipes with whatever is left in her refrigerator. They are just a few examples of how Americans are changing their meal planning as food prices continue to climb............................

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

 

June 10 -- The number of Americans losing their homes to foreclosure continued to soar in June, according to a report released Thursday. RealtyTrac, an online marketer of foreclosed properties, reported that lenders repossessed 71,563 homes in June. A year ago, just 26,369 homes were taken back. During the first six months of 2008, 343,159 Americans lost their homes, up 136% from 145,696 recorded during the same period in 2007. The report revealed that foreclosure filings of all types, including notices of default, notices of auction sales and bank repossessions, rose 53% from June 2007, to 252,363. For the first six months, total filings rose 56% to 1.4 million. "June was the second straight month with more than a quarter-million properties nationwide receiving foreclosure filings," said James Saccacio, chief executive officer of RealtyTrac. There was a shred of good news: When compared with May, filings declined 3%. Part of that decline may be traced to the actions of states, including Maryland and Massachusetts, that have put moratoriums on foreclosures, according to Rick Sharga, a spokesman for RealtyTrac.........................


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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