"When it comes to bailouts, the real discussions are not centered in Washington but rather in Beijing, Tokyo, and Riyadh. With no money of our own, our ability to bailout our own citizens is completely dependent on the world's willingness to foot the bill. While I am sure that Bush and Paulson are doing their best to convince the world that open ended financing of the United States is in the global interest, my guess is that, unlike Congress, our foreign creditors will see through the self-serving nature of our plea.
Like any bailout, our foreign creditors should consider the moral hazard of rewarding bad behavior, and the old investment adage of not throwing good money after bad. By continuing to 'lend' us money, the world is merely delaying the necessary rebalancing of our upside down economy. By continuing to subsidize our reckless and outsized consumption, the world merely delays the inevitable re-balancing and exacerbates the underlying problem at the root of the current global financial crisis...
...So for the same reasons that Washington should not bail out General Motors, the world should not bailout America. Like GM, our economy is in desperate need of a restructuring. Spending must be replaced with savings, and consumption with production. The service sector must shrink and manufacturing must expand to fill the void. The dollar must fall, wages in America must be brought down to a competitive level, and hopefully government spending and burdensome regulation can be reduced.
This transformation will not be fun, but it is necessary. Our standard of living must decline to reflect years of reckless consumption and the disintegration of our industrial base. Only by swallowing this tough medicine now will our sick economy ever recover. By accepting a lower standard of living today, we will eventually be rewarded with a higher one tomorrow." (Emphasis Mine.)
Here's the thing: No one wants to face the harsh reality. We all want to take a minty pill and have this hideous disease go away. It won't be that easy and the more We delay with snake oil and nostrums, the harder it will be to make a full recovery... if one can be ever be made.
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3 comments:
One has to wonder if Mr. Schiff knows what he's talking about given statements like the following:
"By continuing to subsidize our reckless and outsized consumption, the world merely delays the inevitable re-balancing and exacerbates the underlying problem at the root of the current global financial crisis..."
Perhaps Mr. Schiff could explain how it's possible to consume more than is produced?
And if production is not meant for consumption, then what is the purpose of production?
Since it's physically impossible to consume more than is produced, society should not have to go into ever increasing debt to consume what has already been produced.
The fact that we do slide into ever increasing debt to consume what we produce is not due to the fact that we're "consuming too much", but due to the fact that costs rise faster than incomes when regarded as a flow.
It is physically impossible for a society to "consume too much" since consumption can never be greater than production, and if it is already produced, we should rightly be able to consume it.
Mr Schiff is confused by finance. There is no such thing as a debt in nature. You do not physically owe the future for current consumption, because current consumption is merely limited by current production. The real (i.e. physical) cost of production is consumption.
One has to wonder if Mr. Schiff knows what he's talking about given statements like the following:
Without a doubt! Not only is he brilliant and savvy, he is so because he can read between the lines with his OWN research and analysis. Rather than taking the old lazy approach that everyone else does... trust the government numbers.
"By continuing to subsidize our reckless and outsized consumption, the world merely delays the inevitable re-balancing and exacerbates the underlying problem at the root of the current global financial crisis..."
Think global! Your thinking local (U.S.).
Perhaps Mr. Schiff could explain how it's possible to consume more than is produced?
He means that too much consumption comes from offshore (India/China). And worst yet, most Americans have borrowed (paid by credit card) when they purchased those goodies.
And if production is not meant for consumption, then what is the purpose of production?
Production, consumption, imports, exports... its a delicate balancing act!
Since it's physically impossible to consume more than is produced, society should not have to go into ever increasing debt to consume what has already been produced.
Yes it is, if most of your goods are produced and imported from another country. That wealth is transferred over to the exporting country.
The fact that we do slide into ever increasing debt to consume what we produce is not due to the fact that we're "consuming too much", but due to the fact that costs rise faster than incomes when regarded as a flow.
You can justify it as much as you'd like, but debt is debt no matter what the reasons are.
It is physically impossible for a society to "consume too much" since consumption can never be greater than production, and if it is already produced, we should rightly be able to consume it.
See my comment above. Read a bit on wealth distribution through imports/exports.
Mr Schiff is confused by finance. There is no such thing as a debt in nature. You do not physically owe the future for current consumption, because current consumption is merely limited by current production. The real (i.e. physical) cost of production is consumption.
I think you are somewhat confused a bit. Economics 101... everything he says makes sense!
Jeach!
Thank you, gentleman. But it seems to Me that Schiff was right, is right and until he clouds his vision due to hubris or greed, will continue to be right.
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