So, is Obama going to be miracle-man? No; and I don’t think anyone truly thinks that. But it certainly seems that quite a bit of hope is being placed upon ARP (his stimulus plan). Peter Schiff doesn’t think ARP is going to work. It’s more of the same. It’s asking the rest of the world to foot another big American bill (since that’s basically who’s going to be paying for it if China, Japan, etc. keep buying US bonds).
One great point Schiff makes is that only the private sector (corporations) can truly create real wealth. The government can only rearrange it and spread it around.
“Nothing is going to happen. The government has no wealth. The government has a printing press, and they can pretend to create wealth by printing money, but that illusion won’t last very long. I think we’re on the verge of another major crisis, that’s far greater than the one the government is trying to deal with now, and that is the coming collapse in the value of the US dollar.” — Peter Schiff, January 2008
I have to say that the logic here is rather sound. Of course, foreign governments can ease their buying of US debt and “turn the taps off” so to speak. In fact if you read the January 8 New York Times you’ll see an article on China beginning to do just that (and I wrote about that in a few posts back in December).
“The rest of the world is not that dumb. I think they’re learning a valuable experience from this and that is, don’t lend the Americans any more money.” — Peter Schiff, January 2008
This is the way I just thought of it today: all the government and the Fed have really done in the past few months is scoop up all the dirty debt and huddle it together under one roof, while “exchanging” it for new money fresh off the printing press (whether that press is virtual or real - it’s virtual in some cases and real in others). They sweep the debt under the carpet hoping that things will be business as usual and that they can trade it back in later when prices and values go back up, and then everyone can be repaid. Well you know what, that’s exactly the mess that began the mess in the first place. Buying more home than one can afford - taking on extra debt - in hopes that the rise in values would eliminate the debt before too long.
The US government was already having debt problems. Imagine what it’s going to look like now? Will the debt bubble expand once more around the globe? We’re already seeing signs of a bubble in 30-yr US bonds. That’s old news. If emerging economies like China take them on, who will they be able to pass the hot potato to? No one! So the buck stops with China, and that’s why.
I say keep a close eye on China’s foreign reserve policy, since that’s where the wave is going to begin. As of September 2008, China overtook Japan as the world’s largest holder of US debt.
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