We're pleased to present another Peter Schiff opinion piece this afternoon, this time from the normally staid and ordinarily wimpy Wall Street Journal. Mr. Schiff, (whose views we've previously featured numerous times on WCF,) postulates (with WSJ editorial approval) that our major international creditors, China, Japan and Saudi Arabia (among others), are unlikely to continue financing our ongoing U.S. Treasury Securities shell-game, which shifts all the economic sacrifices of the world economy to these these creditors' own nations, while the U.S. continues to Par-tay. The US has developed some exceedingly bad habits, Schiff sez, such as financing the phony US consumer economy, which has been financed most recently through unsustainable and maxed out home equity loans and reckless credit card borrowing.
Midway through the article, Schiff cuts to the chase, identifying the root problem with the bogus Bush43 Service Sector-driven Economic Model, and efforts on the part of anybody in the current Obama administration to revive it:
The root problem is not that America may have difficulty borrowing enough from abroad to maintain our GDP, but that our economy was too large in the first place. America's GDP is composed of more than 70% consumer spending. For many years, much of that spending has been a function of voracious consumer borrowing through home equity extractions (averaging more than $850 billion annually in 2005 and 2006, according to the Federal Reserve) and rapid expansion of credit card and other consumer debt. Now that credit is scarce, it is inevitable that GDP will fall.Our view here at Weber County Forum is that we'll never recover as a nation from our current economic mess, unless and until we understand a few primary concepts:
Neither the left nor the right of the American political spectrum has shown any willingness to tolerate such a contraction. Recently, for example, Nobel Prize-winning economist Paul Krugman estimated that a 6.8% contraction in GDP will result in $2.1 trillion in "lost output," which the government should redeem through fiscal stimulation. In his view, the $775 billion announced in Mr. Obama's plan is two-thirds too small.
Although Mr. Krugman may not get all that he wishes, it is clear that Mr. Obama's opening bid will likely move north considerably before any legislation is passed. It is also clear from the political chatter that the policies most favored will be those that encourage rapid consumer spending, not lasting or sustainable economic change. So when the effects of this stimulus dissipate, the same unbalanced economy will remain -- only now with a far higher debt load.
1) Until housing prices descend to point where median housing prices match up with median US incomes, we'll never go "forward" with the housing market, and;Write it down so you don't forget it.
2) We need to "go for the gusto", until we're successful in bringing the factories and other engines of economic production back to our own shores.
Tapping the equity of rapidly declining (formerly bubbled-up) real estate "values" obviously won't get us to the "promised land," as has been painfully proven within the last economically devastating year.
Neither will our current U.S. " posturing," wherein which we "pose" as a productive economy, even though we no longer actually produce anything that's economically notable.
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