Friday, April 24, 2009

Peter Schiff takes on the voodoo doctors

I've been working on a primer about the economic crisis which I hope to publish here soon. In the meantime, I have found some good video clips on youtube.

This one (thanks to steve) shows Peter Schiff arguing two or three years ago that we were heading for a crisis. It's great the way he sticks to his guns while being rubbished and laughed at by 5 or 6 other "expert financial advisers" = voodoo doctors


Unknown said...

Great video! Shows how financial advisers are good at understanding the past and the present but not very good at the future.

Sean FitzGerald said...

I love Peter Schiff!

As soon as I saw gnuchris twittering that you'd posted this video I had to come over and say... exactly what you said!

"It's great the way he sticks to his guns while being rubbished and laughed at by 5 or 6 other "expert financial advisers" = voodoo doctors"

My words exactly (spookily so). You gotta hand it to the guy. Much to admire in his stickability.

WRT your primer, I assume you are familiar with Chris Martenson's Crash Course? There has been plenty of good stuff about the economic crisis from the US perspective, but I'd love to see one from the Australian perspective. For example, there is a significant difference between the function and role of the US Federal Reserve and the Australian Reserve Bank.

Bill Kerr said...

Tony, those financial advisers didn't seem to understand anything except how to be a pig at the trough. They treated Peter Schiff as though he were an alien from outer space, they couldn't follow or analyse his arguments at all.

Peter Schiff is an economist of the Austrian school, he was an adviser to Ron Paul, one of the Republican Presidential candidates (much loved by the libertarians)

Check out Euro Pacific Capital for more Schiff

I've done a transcript of some sections of the youtube video and will type them up in a sec. It is a good example of the austrian school analysis which, that the central issue is bad money, a financial crisis. The marxist view is that there is an underlying overproduction crisis which is more important.

Interesting that his father, Irwin Schiff , is a tax protestor currently in gaol on a long stretch.

I would say that Schiff and the Austrians represent the capitalist reality therapy (its the recession we have to have, we must take our bad tasting medicine for our previous sins of debt and consumption) whilst Obama and the stimulus crew are the junkies that can't quit. I'm on a downer, give us another shot of heroin, bro.

The other alternative is Marxist, which also made similar predictions about the crash. See Brenner's analysis Thanks for the Chris Martenson's Crash Course tip Sean. I'm getting busy on other stuff again shortly but will try have a closer look. My primer won't be from the Australian perspective - what I'm trying to do is introduce the two schools of thought that have some sort of clue about this crisis (Austrian and Marxist)

Mark Miller said...

I remember seeing Schiff on the financial shows, and I remember thinking how bizarre it was that he was saying the sky was going to fall, and everyone else was shaking their heads in disbelief at him. I didn't know whether he was right or not at the time.

What I remember him saying probably around 2007 was that the dollar was going to crash, and that he was advising his investors to get out of the dollar totally. It looks like he was wrong on that one. The dollar has gone up for the time being, mainly because of our bond rating and our increased deposit guarantees.

I think he got one part of the economic picture right, that our productive capacity has decreased and we couldn't afford what we were buying. That's the reason Americans were using their homes as ATMs. What he only briefly expressed, which was the real cause of the crash, was the securitized mortgages. Mortgage originators were making totally bizarre loans: 0% down, no demand that the borrower have a job, or any assets. It was beyond stupid. Poor people were being given loans and placed in homes worth a half-million dollars. What was even more bizarre was they didn't shop for the homes. Some mortgage broker found the homes for them. The home buyers were just happy beyond words... If this insanity hadn't been happening with mortgage originators, there would've still been a recession, but it would've been milder.

I think the clips that are shown in this video show that some of his predictions were very prescient, and I agree with his analysis that this downturn could go on for years mainly because the government is accelerating borrowing and printing money like crazy, which as he said will lead to inflation and higher interest rates, and higher taxes. And it will lead to the dollar becoming worth less later on.

I agree with his solution to the problem, but we're apparently in the minority...

Bill Kerr said...

Here's a transcript of some of Peter Schiff's words (not all of his words, I've skipped some sections, and none of the words of the others) from the video:

PETER SCHIFF, President Euro Pacific Capital August 2006 comments about the economy:

Its going to be bad … whether it starts in 2007 or 2008 is immaterial … the recession will last for years

The basic problem with the US economy is that there is too much consumption and borrowing and not enough production and saving

The consumer will stop consuming and start saving especially when he sees his home equity begin to evaporate

When you have the economy at 70% consumption you can’t address those imbalances without a recession. The recession should be embraced and not resisted

The disease is debt financed consumption, the cure is to stop consumption and start saving again and that’s a recession. The medicine tastes bad but you’ve got to swallow it

In response to another speaker that things were good:

It's not wealth that has increased in the past few years, all that has increased is the paper values of our stocks and real estate

When you see the stock market come down and the real estate bubble burst all that phony wealth is going to evaporate, all that is going to be left is all this debt we accumulated to foreigners

August 2007 comments:

This is just getting started

It is not just subprime, this is a problem for the entire mortage industry

It is not just people with bad credit who are going to see their home equity vanish

It is not limited to mortage credit

Americans are going to have a difficult time borrowing money to buy cars, furniture, appliances. Foreigners have been lending the US money for years, they are now finding out that we can’t afford to pay

This is going to become an enormous credit crunch. The party is over for the US. We cannot continue borrowing to live beyond our means and consuming foreign products